R5Realty News and Notes

Market Snapshots and Commentary on Value and Quality of life along the former Main Line of the Pennsylvania Rail Road, up until recently called the R5 Line, and now officially known as the Paoli /Thorndale line. R5Realty runs from Center City Philadelphia through the walkable, Westward outlying Towns & Townships.

Sunday, August 22, 2010

How Much Money is Needed To Buy A House?

Somewhere between $5000 - $50,000 for a Starter Home or moderate Starter Home upgrade in the wonderful communities from Center City to Wayne. We break it down below with headlines linked to extremely helpful, detailed articles from the highly respected source, Bankrate.com.

The amount of money you lay down when you buy a house and obtain a loan is called the Down Payment.
You must ascertain this from the get-go a very basic idea of How Much Money you will be able to come up with when you are ready to buy a house. For a very modest 3BR home along the R5 from Center City westward to Wayne, you could find a nice, modest 3BR small house for 250,000.
If you are reading this far and are like most people on Earth, you don't have the means to write a check to buy a house for $250,000. So no matter what sort of house you buy - and you could potentially buy a super little house for $150,000 - you are going to need to get a Loan and Borrow discussed a bit later here.
For pretty much any home along the R5 you will need between 5,000-50,000 to begin the actual purchase process and also an addition 5-10 Thousand on hand to pay for additional Closing Costs.

Another piece in the Down Payment question is factoring in the Extra money you must have on hand to pay for Closing Costs, which add about $5,000 to $10,000 on to amount of cash need to buy a home in the 150-250k range. Closing costs include charges such as: a transfer tax of about 1-2% that Townships level whenever a home is bought/sold, also pro-rated property/school taxes you have to refund the current owner, and charges related to obtaining your loan.
There are simple ways to help spread out closing costs over time, and in some scenarios you might entice the Seller to give some of his expected profit to help cover some of your closing costs. This is called a Sellers Assist, but for simplicity's sake, when you are figuring out how much cash you have and how much house it can buy, I think having 7500-10,000 in the bank and able to immediately transfer is a Starting Point for when its time to start looking with Intent to Buy. The remainder of the cost of the house can be financed, or obtained via a Loan discussed below.

Lots of people talk about Getting a Mortgage.
What you are actually Getting is a Loan from a bank or lender.
In return for them trusting you to pay back the Loan money, you Give a Mortgage to your bank or Lender. The Mortgage you give is the Right for the bank or Lender to Take the house should you not make good on your loan, which you can pay back in monthly installments.

a) Conventional Loan - where you pay a larger Down Payment but pay more in fees and interest over the life of the loan, usually 30 years.
b) FHA Loan - Where you can put down a much Smaller Amount of Money but pay More in fees and interest over the life of the Loan.

With a CONVENTIONAL LOAN  you need a 20% downpayment, meaning you are paying 20% of the cost of the house out-of-pocket on the day you purchase, and your Loan amount is the remaining 80 percent... On a $250,000 house you need to be able to write a check for $50,000 the day the deal goes down and your borrowed amount is $200,000 You now get the best deal on interest and fees for paying your loan back... But what if you cant get $50,000 together, can you still buy the house but with a different type of loan described below.

With an FHA LOAN you need a down payment as little as 5%, which is only $12,500 for the same %250,000 house. Your terms, or your fees and interest to pay back the $237,500 loan will be more expensive than if you had a conventional loan, but usually reasonable enough so as to still make this deal appealing to those with smaller war chests so to speak.

Ok, we know how much you need as far as Down Payment and Settlement Costs to buy a 250,000 house . A minimum of $5k-10k cash is my recommended starting point, but the next critical step is making sure that you will be able to afford the Monthly repayment you must make to your lender.  Clicking the headline above will take you to a handy mortgage calculator, or you can read on below.
For example: Monthly payment on a $250,000 home -- bought with putting 60k or 20% down for a conventional mortgage and with closing costs-- is about $1350-$1500 per month. That covers your loan payment, taxes, insurance.You need to be able to be ready to prove to a lender that coming up with 1300-1500 per month makes sense within your budget and earning expectations.
Lets say you have less cash available to put down but still want to buy the 250.000 k homes, you could put down only 12-15k to make the deal but your Monthly payment would be higher, maybe 1600-1850 per month. In other words, if you have 10-15k available and the ability to both pay and prove you can pay between 1500-2000 in monthly payments for shelter, then talk to your Realtor about getting Pre-approved for a loan, as having a Pre-approval letter on hand and ready to submit, is a prerequisite in a transaction if you wish to show some respect for the Seller - and you do because that adds value to your offer.

Once you have determined how much cash you have or expect to have on hand, its time to call a friendly Real Estate Agent or Realtor who can help you to decide if now is the time to get Pre-Approved or not. Some of this might include your recent credit history or your expected earning ability to cover monthly payments.
In a Pre-Approval, you give a lender (Realtor will help you find one if you don't have someone in mind) your financial information and the Lender provides a statement letter advising how much you are eligible to borrow. given that everything you advised is correct. You are not in anyway beholden to use the Lender who gave you a pre-approval, but what you seek is a document from the highest caliber and best regarded lender possible, to say they have regarded your sworn financial information and certify you as a qualified candidate to be approved for a loan and a purchase.
A Pre-qualification letter and certification that your viability has been at least preliminarily reviewed, are a door-opener for beginning submitting or negotiating an offer... Your bid cant be regarded seriously until you have shown you can make the effort to get reviewed and backed by a lender. The process can be done over the phone and online, and is quite easy.

You know how much you have available for a Down payment and you know how much you are eligible to borrow. You can now really go house shopping as you Pre-Qualified, Eligible and Prepared to make an Offer on a house.
Once again, Bankrate.com is an excellent source of information for all things related to How Much Money is Needed to Buy a House.