3 Ways To Lower Move-in Cost When Buying A Home
The Total Move-in Cost to buy a home consists of 3 elements. And how you choose to structure your financing will determine how much cash each element requires and therefore the Total Move-in Cost.
The 3 elements are:
- Down Payment
- Closing Costs
- Prepaid Items
How Much Cash Does It Take To Buy A Home?
The difference between the Sales Price and the Loan Amount. Putting 20% down on a $200,000 home, the Loan Amount is $160,000 and the Down Payment is $40,000. If instead you are putting 5% down, The Loan Amount is $190,000 and the Down Payment is $10,000. Putting 3% down, the Loan Amount is $194,000 and the Down Payment is $6,000.
The costs associated with closing on the purchase on the home and getting mortgage financing. They consist of items such as Lenders Fees, Appraisal Fee, Title Fees, Survey, & Recording Fee. At White Rock Mortgage our Lender Fee and Origination Fee is Zero, the Appraisal Fee (if an appraisal is required) is $560, Title Fees vary based on title company, purchase price, and loan size. They consist of Closing Fees, Lenders Title Policy*, and Owners Title Policy* (*in Texas, Title Policy premiums are regulated by the State of Texas and are uniform at all title companies. see title rates) . Surveys are generally $400-$500 but the existing survey is often provided by the seller at no cost. Recording Fees cost $140-$200. Homeowners Associations often charge transfer fees around $200. In our example $200,000 transaction, the closing costs for a $190,000 loan (5% down assuming seller provides survey) would be:
- $0 Lender Fee
- $560 Appraisal
- $2320 Title, Recording, and HOA Fees
- $2880 Total Closing Costs
Consists of Homeowners Insurance and Property Taxes:
A 1 Year Premium for a Homeowners Insurance Policy costs from $1000 to $3000. Shop around and get a good deal. You’ll also have to put 2 months worth of taxes, and 2 months worth of Homeowners Insurance in an Escrow Account that will pay your annual Property Tax bill and Homeowners Insurance premium. Since you won’t start making monthly payments on your new home for over 30 days from closing, the 2 months cushion is need so that there will be enough to renew your Insurance next year before it expires and to pay your Property Tax bill for next year on time. Property Taxes in Texas vary by city but are on average 2.4%, $4800 per year or $400 per month in our example of a $200,000 home. In our example Prepaids would be:
- $1500 Homeowners Insurance premium for 1 Year
- $1050 Escrow Account (2 months Taxes at $400 per month & 2 months Insurance at $125 per month)
- $2650 Prepaids
Total Move-In Costs
- $10,000 Down Payment
- $2880 Closing Costs
- $2650 Prepaids
- $15,530 Total Move-in Costs
3 Ways To Lower Move-in Costs
If that is more cash than you have to buy a home, here are 3 ways to reduce Move-In Cost:
The first and most obvious way is to lower your Down Payment. If you put 3% down on a Fannie Mae or Freddie Mac loan, or choose FHA financing and put 3.5% down, you can reduce the cash needed to close. If you are an eligible Veteran, the VA loan gives you the option to make a 0% down payment. The tradeoff is a higher payment due to the higher loan amount.
A Lender Credit reduces closing costs . The amount of the Lender Credit is a percentage of the loan amount and increases incrementally the higher the interest rate you accept. In effect, you are putting the Closing Costs into the interest rate and the tradeoff is paying a higher monthly payment in exchange for bringing less Cash to Closing.
Property Taxes are what they are and are not something you can control, but you can shop around for homeowners insurance and save some money.