How to Buy a Home with Little or No Money Down
Home ownership is still a large part of the American Dream. Unfortunately, too many feel this dream isn’t attainable because they believe they don’t have enough money to buy their own home. In reality, there are many programs available to Michigan home buyers that help to keep out-of-pockets down.
In a typical home purchase, buyers are required to have funds for;
Private Home Inspection
Homeowner’s Insurance Policy
These costs can add up. For example, on a home purchase of $125,000, you can expect your out of pocket costs to exceed $10,000. Let’s take a look;
Down Payment – On an FHA mortgage, the required down payment is 3.5% of the sales price (in this case, $4,375). On a conventional loan, there are programs that require down payments ranging from 5-20%. (If you’re interested in learning about specific down payment requirements, feel free to contact me for a referral to a mortgage professional who can explain various loans for which you may qualify).
Closing Costs – Also known as Cash to Close, these are the costs associated with acquiring a loan and purchasing a home. They include; tax pro-ration reimbursement to the seller, loan origination fees, flood certification fee, credit report, tax service fee, initial escrow payment, title insurance and recording fees among others. As a general rule, you can expect these costs will total approximately 6% of the sales price (in this case, $7,500). Closing costs vary, so be sure to consult with your lending professional for a complete list of the specific costs you will be charged.
Private Home Inspection – I always recommend to my clients that they hire a private home inspector to conduct a thorough inspection of the property they plan to purchase. After all, a home is quite likely to be the most expensive purchase you make in your life. Shouldn’t you at least have a peek under the hood? Home inspection costs vary, but a qualified home inspector can be found for $250-$500.
Homeowner’s Insurance Policy – Your lender will require that you purchase a homeowner’s insurance policy for your new home prior to granting final approval on your mortgage. Several factors go into determining the cost of homeowner’s insurance. If you are purchasing a home in the Metro Detroit area, estimate your cost for comprehensive coverage to range from $800 - $1,500. Also, note that the policy must be in place prior to closing. Consult with an insurance agent and mortgage lender on options for having this cost included in your Cash to Close costs.
Appraisal – Your lender will require that a professional appraisal of the home value be conducted and that the appraised value meet or exceed your agreed upon sales price. The cost of an appraisal can range from $400 - $600.
There is a hope! In an effort to increase home ownership by helping buyers reduce their out of pocket expenses, lenders, housing authorities, governmental agencies and non-profits have developed a number of down payment assistance programs. These programs aren’t restricted to first-time home buyers and some don’t require that the buyer be low income. Down Payment Connect is a free tool that helps you uncover home buyer programs for down payment help, closing costs, tax credits and more. Click on the link to find home buyer programs in your area. Simply enter your household information and request a full report to get all the details. It’s that simple!
If you’re ready to begin your home search, contact me today! Together, we can discover what options are available to you.