How Much Do You Need Out Of Pocket to Buy a House?

By: Speak Straight Mortgage

Buying a house is a significant milestone, and one of the most common questions prospective buyers have is, “How much do I need out of pocket?” In this post, we’ll break down the essential points from a recent video by Matt from Speak Straight Mortgage to help you understand the financial requirements and steps involved in the home-buying process.

Initial Recommendations

To get started, here are some baseline recommendations:

• Savings: Aim to have at least $5,000 in savings.
• Credit Score: A minimum credit score of 620 is advised.

These initial requirements are just guidelines, and you should start planning and consulting professionals even if you don’t meet these criteria yet.

Start Planning Early

It’s crucial to start planning early and get in touch with a mortgage lender and a real estate agent. They can guide you more efficiently towards your goal of buying a house.

Key Concepts to Understand

1. Down Payment vs. Total Out-of-Pocket Costs:

These are not the same. While down payment assistance programs or VA loans might cover the down payment, they do not cover closing costs.

2. Earnest Money:

This is a good faith deposit, usually about 1% of the purchase price, required when making an offer. It’s refundable and shows the seller you are serious.

3. Home Inspection:

While not mandatory, a home inspection is strongly recommended. This can cost between $300 and $700.

4. Moving Expenses:

Ensure you have additional funds for moving expenses so you are not down to your last dollar when moving into your new home.

Refundable Costs

Both earnest money and home inspection costs can be refunded at closing, depending on the circumstances. This means your net out-of-pocket cost could be very low, but you still need to have these funds available upfront.

Managing Costs with Seller Concessions

Seller Concessions: These are contributions from the seller towards your closing costs. Here’s an example of how this works:

• Let’s say you’re looking at a $400,000 house. You might need around $9,000 for closing costs after getting down payment assistance.
• Your real estate agent can negotiate with the seller to cover part or all of these closing costs. For instance, asking the seller to pay $5,000 of your closing costs can reduce your out-of-pocket requirement significantly.

The Role of Real Estate Agents

An experienced real estate agent is crucial in this process. They can effectively negotiate seller concessions and identify which properties or sellers are likely to accept offers with such concessions. For example, properties that have been on the market for a while are more likely to accept such offers.

Final Advice

You don’t need to have the full $5,000 saved before consulting a lender or a real estate agent. These professionals are there to help you get ready to buy a house, whether you’re looking to buy in two weeks or two years.

In summary, while the net cost after closing can be minimal, having some funds available upfront for earnest money, inspections, and other initial costs is essential. With the right planning and professional guidance, you can efficiently navigate the home-buying process and achieve your goal of owning a home.

This blog post should give you a comprehensive understanding of the out-of-pocket costs involved in buying a house and the steps you can take to manage these expenses effectively. Happy house hunting!

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