How Much Cash Do I Need?

While 100% conventional financing is pretty much a thing of the past, FHA offers 3.5% down financing and some municipal bond programs offer down payment assistance. In the Twin Cities, conventional mortgages usually require a down payment of 5-10% of the purchase price.

With financing programs in almost a continuous state of flux, it is more important than ever to talk to a lender to discuss your options. A good place for the latest info is www.HomesMSPblog.com. With daily posts, it includes the latest information on financing and other aspects of buying a home.

Regardless of your financing for closing, you will also need some cash at various points in the buying process.

If you’re a first-time home buyer, be sure to see Stop paying rent. Check out What about financing? for financing options and ideas about where to find additional cash.

Earnest money

When you find a home you want to own you will present an offer to buy it. You will include an earnest money check of about 1-2% of the purchase price with the Purchase Agreement as a deposit on your purchase.

Home inspection

You have the option of having a private home inspection before making a final decision on the purchase of a home. If you use a professional home inspector you should budget about $375 to be paid at the time of inspection, usually within 3-5 days of acceptance of  the purchase agreement.

Appraisal

As part of your underwriting process, your mortgage company will order a professional appraisal to verify that its value is at least what you are paying for the property. Budget about $350 - $450 for this cost, usually payable prior to the appraisal.

Homeowner’s insurance

You must pay for your first year’s homeowner’s insurance prior to closing. Allow approximately 0.03% of the purchase price for this expense if you are purchasing a single family home. (If you are purchasing a townhome or  condo, it is usually included in your association fee.)  Typically your monthly mortgage payments will include an amount to be escrowed for future insurance payments to be made on your behalf by your mortgage company.

Down payment

A traditional down payment is 20% of the purchase price of your home, the amount required to avoid paying mortgage insurance with conventional financing.Whatever your financing arrangement, usually a minimum of 3.5%, your down payment is due when you close on your home purchase, usually 1-2 months after your Purchase Agreement is signed and accepted.

Closing costs

There are many steps to get you from a signed Purchase Agreement to actually owning your home. These steps are covered by closing costs. Budget about 3.5% - 4.5% of the loan amount for this expense. Typically you can ask the seller to contribute up to 3% of the purchase price towards your closing costs with a conventional mortgage and up to 6% with an FHA mortgage.

Example of minimum cash required

Let’s estimate, for example, the cash you might need if you bought a house for $193,000 with 3.5% down with a 6% seller contribution towards closing costs.

The information below is for illustrative purposes only.  Although calculations are believed to be reliable, they are based on certain assumptions whose accuracy cannot be guaranteed. Speak with a mortgage lender to find the best financing options for your unique situation and to receive a Good Faith Estimate.

If you’re a first-time home buyer, be sure to see Stop Paying Rent. Check out What about Financing? for financing options and ideas about where to find additional cash.