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How Much Money Do You Need To Buy A House?

May 27 2018
by Ben Mizes

Saving for down payment

 

The best response you get for many specific questions about money is a vague “It depends.” Financial questions about buying a house are no exception. Every buyer has a different combination of price points and credit scores and money saved for down payments, making it impossible to answer with a hard number. While we don’t have a magic number, we can break it down so you can start a plan. Here’s how much money you need to buy a house.

The best response you get for many specific questions about money is a vague “It depends.” Financial questions about buying a house are no exception. Every buyer has a different combination of price points and credit scores and money saved for down payments, making it impossible to answer with a hard number. While we don’t have a magic number, we can break it down so you can start a plan.

 

What You’ll Need for the Down Payment

The down payment is the most apparent cash expense to most home buyers. Ten to twenty percent of the cost of the property is a typical down payment. If the home is $100,000 and you’re required to put twenty percent down, you should have at least $20,000 in cash in the bank. Easy.

How much do you need to put down? The answer depends on the lender. With most lenders, if you want to avoid paying private mortgage insurance, you need to be able to throw down the full twenty percent. That can be difficult for most people, especially first-time buyers. There are lenders with options for ten percent and five percent down unless you qualify for a Federal Housing Administration (FHA) or VA loans which require less.

Other Upfront Costs of Buying a Home

Additional fees are where things start to get sticky. You could need up to 1.5 times your down payment! Say you get approved for a $100,000 loan. You will need to come up with an additional $2,000 to $6,000 on top of your down payment to cover closing costs. Fees include everything from the application and credit report to the home inspection and survey.

Can You Buy A House With No Money Down?

There are a few loan options that allow you to purchase a house with no money down. A zero down mortgage is what it sounds like–a mortgage that requires no money down at closing. It seems appealing to many potential buyers, but it’s a tough loan to get in this climate. Not everyone will qualify, but it’s not impossible, and there are chances you can buy a house with no money down.

The second option is a USDA loan. It is a low-interest mortgage offered by the United States Department of Agriculture and is designed to help low- or moderate-income people with decent credit buy a home in a rural area.

The FHA loan is an alternative option. While they don’t offer a no-money-down mortgage, they do allow for loans with a payment as low as 3.5% of the home’s purchase price. Lenders have restrictions for the fees they are allowed to charge you in an FHA loan agreement.

If you’re a veteran, you might be able to get a VA loan with no down payment from the U.S. Department of Veterans Affairs. To qualify for the loan, you’ll need good credit, enough income, and a Certificate of Eligibility from the VA. The perks of qualifying are no down payment on the home, no private mortgage insurance premium, and limited closing costs.

The bottom line is no matter what kind of loan you get–with or without a down payment–make sure you can make the payments. You don’t want to land in a situation where you can’t afford the mortgage and other costs of homeownership each month.

sad low credit score

How Low Can Your Credit Score Be To Buy A House?

The FHA has the lowest credit requirements of any mortgage, often referred to as bad credit loans. The minimum score is 500, with a down payment of ten percent. If the score is above 580, you need 3.5% down.

Lenders are beginning to look at other things than just credit to determine if you’re able to take on a mortgage. Other things that can work to your advantage are a high down payment of more than ten percent, a significant amount of money in savings, low debt-to-income ratio, or long employment history with current employer.

 

How to Start Saving for a Down Payment

We’ll admit it–it’s hard to save money for a down payment. However, it can be a real accomplishment, with a real prize. First, open a savings account online. Using the same bank makes it easy to move money into your savings account, which means you’re more likely to do it.

Establish a budget and be strict. Start a spreadsheet. Calculate your monthly net income after taxes, then subtract your payments for student loans, car, utilities, and so on. How much money is left every month? How do you spend it? Now that you’re keeping track, you can cut costs and make room for saving.

Let’s step back for a second. Before you start saving, you should aggressively pay down debt. Look at everything that is accruing interest. You’ve been making full and prompt credit card payments. Can you call and ask for a lower rate? It works more often than you’d think.

When it comes to a down payment, account for more than you think you need from the beginning. That way you have the cash to cover fees that seem to sneak up on you during the closing.

Saving money on Real Estate shouldn’t have to be difficult. That’s why we created Clever. Clever uses top local real estate agents to lighten your load and help you save money. Call us at 1-833-2-CLEVER or complete our online form to get connected a top-rated local agent that will list your home with a discounted commission rate.

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