Buyer Question: How much cash do you need to buy a home in the Albuquerque area?

Buyer Question: How much cash do you need to buy a home in the Albuquerque area?

(Transcript Snippet): “Tracy:

Question a buyer question of the week and a seller question the week. Want to get that in?

Tego:

So one of the most common questions, and I think, I think, let me, let me preface it this way. I think it’s the most common question that buyers don’t like, I’m embarrassed to ask maybe. And they don’t, you know, they don’t want to feel like they don’t know this answer because it feels like they should know. But the question, but the question is how much money, how much cash do I need to buy a home? How much money out of pocket is it going to take me to buy

Tracy:

How much money do I need to save before I talk about exact to a realtor about buying a home?

Tego:

The thing that’s interesting, there’s been a lot of surveys over the years that, you know, ask people and do they think how much do they think? And it’s, it’s interesting how many people think that they need at least 20% down to buy a home. Now, you know, there’s a whole debate is like, okay, should you, should you do 20% down? You know, or should you save up 20%? And a lot of people think you should, but, but that’s not what we’re talking about here. That what we’re talking about here is what does it actually take? Out-of-pocket so Tracy, for, for down payment, right? This is the amount of money you’re putting in toward the home to get your loan. What are, what are your options there?

Tracy:

So it could be anywhere from zero, okay. Up to whatever you want, right? No upper limit or you pay cash, right? So the V a veteran who qualifies for a VA loan, they have zero out of pocket loans for veterans. There may still be a few closing costs, but there are some options. So maybe the closing costs could be up to $3,000 depending on the price of the home. But it could be zero out of pocket.

Tego:

So far for that zero down program, it’s a dependent that it’s a veteran, right?

Tracy:

But he was served and left in good standing and qualifies to use the VA.

Tego:

And that’s the best program out there. The other zero down program that’s out there, that’s kind of not very well known is

Tracy:

The USDA loan. So this is for more rural areas to provide better financing options for people that are out of the metropolitan areas. So even some parts of Bernie, Leo, Placedus Edgewood, east mountains, south end, Valencia county, Sandoval county, different areas do qualify for a USDA zero down program. So there still could be some closing costs. So we’re talking about down payment is one portion of what it costs to buy.

Tego:

Well, let’s just finish up with the down payment conversation. So other than other than the zero down, we talked about USDA, VA, what other, what other down payment like tiers are there as we go through?

Tracy:

Sure. So then there’s the New Mexico mortgage finance authority that has a down payment assistance program that have to, um, qualify for, to have an income limit. And the limits are very high. I I’m surprised. So the mortgage finance authority, we call it the MFA.

Tego:

Oh, hi. What’s you’re saying though, is there’s a limit. So if somebody makes a million dollars a year, they’re not going to qualify for a down payment assistance program. Right. Right.

Tracy:

However, if it’s a two person household, you know, the income in, in Bernalillo county or Albuquerque, you can make up to, I think it’s about 70,000 a year and qualify for a down payment assistance program to help you get into a home.

Tego:

Um, and th those are great programs, $500 out of pocket, right.

Tracy:

And in Santa Fe, the limit is much higher, still like 80,000. And if it’s a three person family, it’s actually higher than that. So that’s a down payment assistance program which helps cover the closing costs. And the down payment, you have to have at least 500 out of your own pocket to put into it. There’s a couple different programs within the MFA, so it could be first home or next home. Okay. So if you have owned a home, there might still be a program for you. And first home is actually only having owned in three years. Not never been a homeowner. And then it goes to FHA.

Tego:

So let’s go to the next. So,

Tracy:

So then we’re at FHA, which is three and a half percent down payment. So let’s talk about a $300,000 house, right?

Tego:

Let’s talk about a $250,000 house. Cause I just did the math.

Tracy:

So down payment three and a half percent

Tego:

Is 87,

Tracy:

8,750. So when somebody says, how much down payment do I need to buy a $250,000 house, most people would be FHA financing.

Tego:

Well, okay. I’m going to contradict that because that’s actually not the most popular loan program right now. FHA is not actually conventional loans are more popular right now, but

Tracy:

So anyway, FHA

Tego:

FHA is a very popular, really good program, three and a half percent down. So next there’s actually these conventional loan programs

Tracy:

That might start at 3% down, 5%, 10%, 20%. So conventions.

Tego:

And in the, in the thing with those is you don’t have to know exactly what the best program for you is. You’re going to, you’re going to work with a mortgage lender, a mortgage broker, mortgage officer, whatever you wanna call it that is, you know, can look at your financial situation, look at how much money you’re able to put down and then, you know, gear the program and, and, and put the, put you in the best loan program for your situation. Right? I think that the takeaway we want to get here is that, you know, people can get into a home for, you know, $10,000 or less in down payment when they’re thinking about, okay, how much money do I need to save? Um, the next part of this conversation other than the down payment is the actual closing costs. So other than the down payment, which is your skin in the game, if you will, on equity in the house, right? What, what other costs is a buyer going to have getting to get into a home?

Tracy:

You’ve got the down payment and then you’ve got some other costs in today’s climate of being a home buyer. Typically the home buyers are paying for their own inspections. So that might be a home inspection for, let’s say around $350 give or take plus tax

Tego:

These days, aren’t they? Nope,

Tracy:

Three 50 is most of them, some of them are as high as five or more

Tego:

Plus tax,

Tracy:

A termite, dry rod inspection, you know, 80, 80 to $90. And, um, sometimes there’s a sewer line. Sometimes you’re looking at Wells and septics and things like that. So those are things to look at, but we have a whole chart of what things typically cost and who typically pays for them when you’re buying a house. And then there’s things like your first year of homeowner’s insurance, that’s paid up front at closing. So if you’re buying a $250,000 house, typically, you know, you’re going to get a quote from a home insurance company and maybe it’s 800 to $1,200. They’re going to collect that upfront for the first year.

Tego:

So I just wanna, I don’t wanna break this out here because I think it’s important distinction here when you buy a home, you know, let’s say, let’s say you’re buying a home with cash, right? You’re still going to have home inspections. You’re still going to have a termite or dry rot or any other inspections you want to have. You’re going to have those costs. You’re going to obviously pay for your, you know, pay for your insurance. Usually it’s a year in advance, but if you’re, if you’re getting a loan on the home, which we were just talking about, you’re going to have some, some expenses that are very specific to the loan. And so what would those be?

Tracy:

The loan fees. So to the lender, they’re going to charge a fee for underwriting. They’re going to charge a, an origination type fee, kind of a transaction fee. And, um, and there’ll be a few other fees, like a small one to check your credit and a couple of, um, mortgage endorsements. Because when you close on the home, they want to be on that loan as well as you at for ownership. But you know, those are, um, the lender fees vary a lot. So it’s really important. A lot of times people call a lender and they go, what’s your interest rate? And they’re trying to compare interest rates when choosing a lender. But what they don’t think about is how much does the lender also

Tego:

That is a big, big buyer tip, right? There is don’t just look at interest rate, look at the other expenses or other costs that a lender may be charging to do your loan.

Tracy:

So when you take both down-payment and other fees to buy a house, you can figure that, you know, the down payment is one portion and like Tigo just set on a lot of properties. It could be less than $10,000. And then the closing costs could be a couple thousand dollars depending on the price of the home and the types of inspections and what insurance costs and what the lender charges. So

Tego:

W you missed one, can I call you out the

Tracy:

Appraisal and the appraisal?

Tego:

Yeah. So the appraisal, you know, that, that is the, basically the, the valuation, uh, that has to be done by a third party for the bank, the lender that’s loaning you the money to buy this home, to verify that the value of the home is what it is, and that they’re making a safe loan on this property.

Tracy:

Basically, the praiser is basically the eyes and ears of the lender, right. Because the lender doesn’t actually go look at the house and they’re lending a lot of money. So they rely on an appraiser to say, yeah, you’re making a good loan. Yeah.

Tego:

Yeah. W one of the myths in our business, as the appraisers determine what a home is worth, no appraiser just verifies what the home is worth based on what the buyer’s willing to pay for it.

Tracy:

Right. So there you go. So if you’re wondering what, what kind of money you need to have saved to buy a home? There’s the quick thumbnail, but it’s always the best.

Tego:

Yeah. I hate to hear the long version, and these are the conversations you need to have with your realtor. If you’re, especially if you’re first time home buyer and, and, you know, really delve into these, and don’t be embarrassed to ask any of these questions. Right. You know, we don’t know. We know we don’t, if we don’t do something very often, we just don’t know. We do this every day.