The bottom line is you might be able to buy a house for as little as $1,600. Zero down payment ($0), $1,000 to give the seller as an earnest money deposit (EMD), and $600 for the appraisal. Yes, I’ve had that happen, but it’s not a realistic expectation. There are programs like down payment assistance and grants but it’s much the same as welfare, it might be available, but you don’t necessarily want it.
BUT, the idea that if something is too good to be true, it probably isn’t true…is NOT TRUE with lending programs. There are programs that are too good to be true!! You just need to have a proper expectation.
Let’s first talk about what a normal scenario might look like and go from there.
1. The first step in buying a home is to get preapproved by a lender. The Realtor will not drive you around town if you are not serious enough to get preapproved and a seller will not accept your offer if they don’t know you can actually buy the home.
2. The next step is to look for a home with your Realtor. They have tools and contacts to find homes that you won’t know existed until after they have sold. Out of the dozen people who will be involved in the purchase of your home, your Real Estate agent and your Loan Officer will probably be the only 2 true advocates for you. I will go over how to choose an agent later but know they are crucial to the success of your purchase.
3. Make an offer on a home you love. Your agent will complete and offer to purchase that will be about 15-25 pages but shortened it will state something to this effect:
“I want to buy your home for $370,000, if you cover $5,000 of my closing costs. I want the purchase to close 20 days from now so I can inspect everything and have time to get my loan complete, including an appraisal. To show you I am serious I will deposit $3,700 in an escrow account as an earnest money deposit”
Ok…now that the stage is set, how much money might I need to buy in this example?
Let’s say you went with and were approved to use a USDA Guaranteed loan and the appraisal came back at $373,000. Here is how the numbers might look:
Purchase:
Closing costs:
Amount needed:
100% USDA Loan
Seller Credits:
Appraisal $373k (we can use up to $3k for CC): -$2,500
Deposited in Escrow (not needed): -$3,700
Paid towards appraisal: (Not needed) -$ 600
Balance:
In this scenario you would get all of your earnest money deposit back along with the appraisal money. With 100% loans and loans where the seller is helping with closing costs, this is not a rare scenario.
So how much money do you need to buy a house. Most often you will need this upfront:
Earnest money deposit (1% of purchase price) – If you offer $400,000 then a typical EMD is $4,000
Appraisal $600-$800 depending on geographical area
Whole house inspection $400
Down Payment – this could be zero for USDA, VA, Down Payment Assistance (DPA), and Grants. This could be 3.5% for FHA, 3% for First time homebuyers, on up.
Closing costs – This will depend on the time of the month you close, the month property taxes are collected, what rate you choose, and what is negotiated with the seller.
First example: $400,000 FHA purchase
3.5% down $14,000
Closing costs $8,000
Seller Credit: $5,000
Total required $17,000
Second example: $400,000 VA loan
0 Down
Closing Costs $8,000
Seller Credit $3,000
Lender Credit $5,000
Total Required $0
Best bet is to tell your loan officer what the most you could put towards the purchase and what you would prefer to put towards the purchase and ask him/her to give you the best options for that range. This way you can decide What is the best option given the tools you gave the lender.
