We would like to buy a new home in the new year. How much money do we need to have on hand?

The new year will soon be upon us, and with a new year comes a new opportunity for putting your housing dreams into motion.  How much cash do you need to be able to close on a home

First, you must have your down payment.  You will receive the best lending rates if you have at least 25% down.  20% down was the normal minimum years ago, and that is still not a bad idea if you want to avoid paying PMI (private mortgage insurance).  A 10% down payment is also a possibility – you will likely pay an upfront PMI fee, however, for the privilege of putting less down.  You can have this PMI waived if you will pay a higher monthly rate- generally .25% more than the rate would have otherwise been.  Five percent down is also possible if your loan amount is under $417,000.  And of course, with an FHA loan, you only need to put 3.5% down, although the PMI fees are fairly significant.

In addition to your down payment, and PMI if applicable, you should also budget for the following out-of-pocket expenses when you buy a home:

  • Inspection fees – you will pay approximately $400 for a general home inspection, $55 for a pest inspection and $135 for a radon inspection.  If you add a mold inspection, plan for approximately $225 more.
  • Appraisal – approximately $350 charged by your lender to have the how appraised to be sure what you have agreed to pay for the home is in line with the market
  • Application fees – this will vary by lender and can be negotiated upfront – plan on approximately $750.
  • Transfer Taxes – in Pennsylvania, each party pays a 1% transfer tax (on the sales price of the home)
  • Title Insurance – a fee regulated by the state, it is a percentage of the purchase price that varies depending on the price of a home.  For a 100,000 home, the title insurance is almost 1% of the purchase price.  At $1,000,000, the title insurance is slightly more than one half of one percent.
  • Finally, allow approximately $1000 for other miscellaneous fees (title endorsements, recording, settlement, survey)

The best first step toward buying your new home in the new year is to talk to a lender today and begin the pre-approval process.  Once you know how much you can afford to buy, you will be better able to calculate how much you need to close, and to align your new year’s savings goals accordingly!