If you’re thinking of buying a home, you probably want to know how much cash you will actually need to do so.
In fact, many people overestimate the cash needed to buy a home. There are three main buckets you’ll want to account for with cash. Since these costs mostly have to do with the loan, we recommend talking to your lender in order to figure out costs precisely for your situation.
Here’s a breakdown of the 4 main costs you’ll want to consider:
1. Down payment to buy a home
This is the primary cash cost to account for.
- For Conventional mortgages, down payments can be anywhere between 5% and 20% of the purchase price. Conventional loans are typically the cheapest on a monthly basis, so if you’re able to put 5% down, this is an outstanding option. The market is always changing, and we’re even beginning to see 3% down Conventional loans, which is exceptional.
- For FHA loans, you typically only need 3.5% down.
- Other programs, such as USDA and VA loans, may require as little as 0% down.
2. Closing costs when buying a home
These are the costs of getting the loan. This includes items such as the appraisal, paperwork fees, and more. Closing costs are currently ranging between 2.5% and 4.5% of the loan fee, depending on a variety of factors. However, you may be allowed by the lender to roll these costs into the loan. Alternatively, home buyers may ask the seller to pay their costs as well (though this can reduce the strength of your offer).
So closing costs may vary in practice from 0% to about 4.5% depending on your situation.
3. Home inspection costs
You are not expected to be an expert on home condition. Once you find a great home and have your offer accepted, you will want a professional to do a detailed analysis of the home’s condition. This typically costs between $200 and $400. Oftentimes, the seller will fix issues raised in an inspection, more than paying you back for the cost of the inspection.
4. Real estate agents are typically FREE for buyers
When a home is listed for sale, the seller typically agrees to pay a fee to any agent who can bring a buyer. Therefore having an expert find you a home and consult on the process is free to you, which is awesome.
Are there grants and programs to help with the amount of cash I need?
Yes! In fact, we specialize in being experts on these. We also partner with the #1 lender in Colorado to ensure we’re on top of these, as they are always changing. It’s important that your real estate agent keeps up with these programs, otherwise you could miss out. In fact, many of the grants do not need to be repaid by you.
You can check out these details on our First Time Home Buyer Program page.
Want some even better news? Oftentimes, these “first time” programs can be used on your second or third purchase–not just first-time buyers.
Here are some common questions about the grant programs:
1. What if I have already saved a large down payment?
Great! The more you’ve saved, the more options and flexibility you have. You will STILL be able to take advantage of first time home buyer incentives, grants, loans, etc… You will have the flexibility to keep your extra cash in savings, use it to lower your monthly payment, or some combination of both.
2. Do first time home buyer grants work for both FHA and Conventional loans?
Absolutely. You will have the freedom to choose from a wide range of loan options, including Conventional and FHA loans.
3. Do all grants need to be repaid?
No! Some first time home buyer incentives do not need to be paid back, such as the CHFA Down Payment Assistance Grant, which can be up to 3% of your loan (wow!). Certain requirements must be met, so please discuss with us to find what you qualify best for and how you can take advantage of all of the different programs.
4. What if I am not a first-time home buyer? Can I still take advantage of these programs?
In many cases, you will still be able to take advantage of certain grants and programs, YES! Please contact us to find out more about what applies to your particular situation.
Adding up the cash you need to buy a home in Northern Colorado
As you can see, you can have as little as $1,000 in cash and be eligible to buy a home. That’s less than the security deposit for most rentals!
There are many programs out there that will provide you money that you don’t need to repay. Yes, private and public programs want you to buy a home. Take advantage of this.
On the other side of this, the more money you have saved and are willing to put down, the lower your monthly payment will be because the less you will have to pay back over the same period. That’s why many people like to put 20% or more down–they want a lower monthly payment. This is particularly attractive for people who have built up wealth over time but now want to keep their monthly costs low.
What’s my preferred down payment amount?
Personally, I have put down 5% on homes and secured a Conventional loan. This is not for everybody, but it is the sweet spot for me. This means I have a higher monthly cost than if I put 20% down, but I value having the extra cash. And since Colorado has such a solid history of appreciating, my houses have typically gone up in value, which means I’m able to quickly hit 80% equity (the value of the house has gone up, making my ownership in it greater than 20% even though I only put 5% down). This then allows me to eliminate mortgage insurance or refinance to get my monthly costs back down. And that, right there, is the magic of home ownership. It is a true asset that has the capacity to generate true value you can capitalize on and use.
I hope you have found this very informative. We will be more than pleased to work with you and guide you through the process, making it as enjoyable and simple as possible.