Let me walk you through exactly how much you're gonna have to bring to the closing table in order to close on a house that you want to buy. Now, some of the fees can seem a little mysterious, but once we break them down, they're really not too complicated, and I'm gonna show you pretty much exactly everything that's gonna be included when you purchase a house.
So the main thing that everyone talks about is the down payment. Now, the down payment when I talk with clients to get them pre-approved I hear people saying down payments all over the place. Is it 20%? Is it 10%? Is it five? Is it zero? And really we're gonna break that down into different loan types and move into that.
But the first thing I'm gonna talk about is closing costs. So the main thing that we're gonna look at is what's called the cash to close amount. The cash-to-close amount is the final amount that you'll bring to the closing table in order to get the keys to your home.
Now included in the cash to close are two things. One is your down payment and the other is closing costs. So closing costs are fees charged by the lender and other third parties to help you secure ownership of a property.
So let's walk through a couple of those fees. One of those fees is an underwriting fee. A lender's going to charge a fee to be able to underwrite your loan file and make sure that all of the documentation that they need.
Another fee that's gonna be charged is the appraisal where we're paying for an appraiser to come out and give a valuation of the property.
Another fee that we'll run into is title charges. So title charges our fee is charged by a title company basically to do a title search of the property and manage the ownership of the property.
Then we'll also run into homeowner's insurance. So you'll be paying the annual premium of homeowner's insurance upfront. So the first 12 months, right at closing.
Another thing that we'll have as a fee in an escrow. So escrow, when we're putting less than 20% down on a property, escrow is where we'll take the monthly principal and interest payment. And we're gonna group that together with the taxes and the insurance of the property as well. That way, it's all just one big, easy-to-manage payment.
Now with escrow, escrow requires a little bit of a cushion to make sure that in the event that you fall behind on a payment. That you're always current on taxes and insurance. So normally this looks like a couple of months' worth of homeowner's insurance and a couple of months' worth of taxes.
So when we add all of these fees together, these come into our closing costs, and really, it depends widely on how large of a house you're purchasing, what county you're in, how much homeowners insurance's gonna be. The fees vary a lot, but most of the time I see closing costs come in around a few grand. So what we do is we take the down payment plus our closing costs, and we're gonna subtract any seller concessions, and that's gonna give us our cash to close.
Now let's talk about the down payment. How much do you actually have to put down? Now, this varies, depending on what type of loan program we're going with. There are four different types of loans that are commonly used. So let's go ahead and break through those really quickly.
So VA loans are available to veterans. So if you're not a veteran, they immediately disqualify you from that loan. But VA loans give you the option of 0% down.
Then we can move on to USDA loans. Now, USDA loans are loans that have two main requirements. They have to be in a USDA-eligible area, and there's an income limit to the USDA loans as well. Now, USDA loans allow 0% down, but you have to meet those two requirements. So most of the time I don't see a lot of USDA loans used unless you're in a rural area.
So that brings us to the two most widely used loans, the conventional loan and the FHA loan. Let's start with the FHA loan. The FHA loan has a minimum requirement of three and a half percent down. Now this three and a half percent down could be funds that you use from a retirement account. From your personal checking or savings or as a gift from a family member. So the FHA loan is perfect for most people. It's three and a half percent down. It's insured by the government and it's gonna give you some great loan options.
Now that brings us to the conventional loan. The conventional loan is one of the best loans that you get. It's gonna give you the best rates possible, but in return, you're gonna have to have a pretty good credit history. And usually, some solid compensating factors to get the loan. So the conventional loan is gonna require 3% down as a minimum. In some circumstances, let's say you're bringing on a co-borrower who's not gonna be living on the property. Your minimum's gonna be raised to 5%.
So overall, the down payment for most of these loans, whether we're going VA, USDA, FHA, or conventional is gonna be pretty low, especially compared to what I hear a lot of people talking about the standard of 20% down which isn't true. You don't have to put 20% down on a property, but the more that you do put down on a property.
The more likely odds that you're gonna get a better rate, and obviously you're gonna get some lower payments cause you're gonna have a lower loan amount, but bringing all this together, when we're talking about the final cash to close on a house, what we're first adding is how much of a down payment are we looking at?
If you're going on an FHA loan, it's gonna be three and a half percent. If it's a conventional loan, it's gonna be 3%. So take whatever your estimated purchase price is gonna be. Let's say it's a hundred thousand dollars and let's say we're going with a conventional loan. So we're gonna be putting down 3% as a minimum. On top of that, we're gonna be adding a couple of grand worth of closing costs.
Then if you have a great realtor, see if they can negotiate some seller concessions for you which are gonna save you a couple of grand at closing. And if you don't have one yet, you can go to WTHYL - Referral.
Hopefully, this is a little bit less costly of a purchase than you're imagining, or maybe you're on the opposite side and saying, Hey, I have a lot of money to put down. And if you do, that's fantastic. But if you don't, that's perfectly okay. There are loads I've done for people where they've had to bring no money to the closing table whatsoever. There are people who have brought 10,000 and there are people who have brought a hundred thousand, it's all across the board on what you can.
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