Beyond the Down Payment, Saving for a House

Many people looking to become homeowners don’t realize how much the actual costs of purchasing a house are. Most people assume that all they need is a good enough credit to qualify for a mortgage and enough money saved up for a down payment, but these are not the only costs involved with purchasing a home.

The down payment

Most homebuyers don’t pay for their new house with cash, but finance and will have to pay a down payment. There are a few exceptions, such as a few state or local programs or USDA rural development home loans. Most down payments end up being between 3.5 and 5 percent of the total costs for FHA loans, while more conventional loans often require up to a 20 percent down payment.

The reserves

Lenders understand that the down payment is a lot of money. To make sure that the person making the down payment will still be able to afford to make their monthly mortgage payments, they often require a certain amount in reserves. The amount and the guidelines usually depend on the lender. More often than not, one month of reserves will be equal to the monthly mortgage payment (including both insurance and property taxes). A conventional lender will often require the homebuyer to have at least two to six months worth of reserves.

The residual income

In addition to having reserves, lenders will also look at the monthly debts of the homebuyer in addition to the gross monthly income. They want to make sure that the homebuyer can afford mortgage payments after all of their monthly expenses have been paid off. This is referred to as the DTI (debt to income) ratio.

The additional costs of owning a home

These are just the costs that lenders will look at. Homebuyers will have to take into account the other costs of owning a home as well. This includes all the closing costs that loans have, such as the title insurance, homeowner’s insurance, prepaid property taxes, origination fees and more. There will also be utility bills, upkeep, repair and maintenance costs, and possibly HOA fees to consider.

There are a lot of costs and expenses that are part of purchasing and owning a home, so it’s important that potential homebuyers understand what they are capable of buying. If you  are looking to purchase a home in Grapevine, Colleyville, Southlake or surrounding areas,  contact Minteer Real Estate Team today. We’d be happy to point you in the direction of mortgage lenders having high reviews from both our team and clients. They’ll be able to help you determine your purchasing power and which financial loan is best for you and your family.