For many people, the idea of buying a home can feel overwhelming. The thought of needing a lot of money to purchase a home can be a big barrier for many people, but in reality, the amount of money needed today is often less than what you would need to rent an apartment! Thanks to new mortgage programs and low interest rates, the cost of buying a home in California can be broken down into two main categories: down payment and settlement costs.
Down Payment
The down payment is the amount of money you are paying “out of pocket” on the purchase and sale contract. The amount you’ll need for a down payment will depend on which mortgage program you choose. Here are three popular options:
- Federal Housing Administration (FHA) – This program requires a minimum of 3.5% down payment. So, for a $300,000 home, you would need to pay $10,500 as a down payment.
- Veterans Affairs Loan (VA) – This loan program is available to military veterans who qualify, and it doesn’t require any down payment at all!
- Conventional – This type of loan typically requires a minimum of 3% down payment. For a $300,000 home, you would need to pay $9,000 as a down payment.
When you compare these down payment costs to renting an apartment, it’s clear that buying a home can be more affordable. For example, if you’re paying $2,500 a month in rent, your landlord may ask for your first and last month’s rent, a security deposit, and the realtor’s commission – a total of $10,000.
Closing Costs
When you buy a home in California, you can expect to pay closing costs that are typically between 4-6% of the purchase price. These costs will depend on where you live and when you close. Some examples of closing costs include:
- Lender fees – these may include origination, discount points, application, underwriting, and processing.
- Appraisal fee – an unbiased 3rd party inspection to determine the market value of the property.
- Title search and insurance – this insurance protects both the buyer and the lender from losses resulting in defects in the title, such as liens, taxes, and violations from previous owners.
- Private mortgage insurance (PMI) or Mortgage Insurance Premium (MIP) – protects the lender from losses should the buyer default with a loan balance over 80% of the market value.
- Recording fees and taxes – Local governments charge recording fees and taxes to record the sale of property.
It’s important to note that these are just examples, and the specific closing costs you’ll need to pay will depend on your individual situation. To get a more precise estimate of your closing costs, you should meet with a lender.
What to Do If You Don’t Have Enough Money Saved
If you’re worried about having enough money to buy a home, don’t worry – there are many options available to help you. Here are a few ideas:
- Borrow against your Pension or 401(k)
- Withdraw money from your Pension or 401(k)
- Receive a gift from a relative
- Ask the seller to allow you to finance your closing costs
- Obtain a grant from a non-profit organization
- Down payment assistance programs may provide up to 10% of the purchase price. Funds may be used for closing costs or down payment.
It’s important to note that the requirements for these programs vary by type, terms, and location, so be sure to check your eligibility.
Are you ready to take the first step towards homeownership?
The good news is that checking your eligibility is easy!
Down payment assistance is offered on a first-come, first-served basis, so don’t wait!
Click the button below and complete the online survey to see if you qualify to apply. The best part is that there is no cost or commitment required.
Don’t let the thought of saving for a down payment hold you back from owning your own home. Take advantage of this opportunity now and see if you qualify.