buying first home

DH and I are getting ready to jump on the first time homebuyer bandwagon
and of course the questions are starting to swirl

We are looking to purchase a home for 250,000 or below (we met with the mortgage broker at our bank and this is what we know we can afford with a cushion each month).
We are looking to put down 3.5% or slightly more as we will be doing an FHA mortgage
About how much will we need for closing costs?I know that this can vary greatly, i'm unconcerned about the lawyer cost as I get reimbursement from my union for this.
So I guess i'm just looking for a rough estimate to see how much we should have saved before we officiallly start the process.
also how much of a cushion would you suggest leaving in the bank after the downpayment and closing is gone from your account?

Re: buying first home

Hi!

Congratulations on starting a home search. It's a fun and exciting time.

It's great that you spoke to a mortgage professional to get preapproved and then figure out what you can/want to spend. That is step one.

Closing costs can be as much as 6% of the purchase price for a buyer. I would say 4% to 6% is the range, but you want to be prepared for the worst case scenario.

With an FHA loan, you can get a seller's concession for closing costs, up to 6%, which allows you to basically roll the closing costs into your mortgage loan. The only potential downside is that the house will need to appraise for the amount of the loan with the closing costs rolled in. So if you offer $200K and then ask for a 6% seller's concession, the house must appraise for $212K. Also, some sellers and listing agents don't understand seller's concessions, so you want to have a knowledgeable agent working with you who will be able to present it to the seller correctly.

I would say that ideally, you want a cushion of 6 months of living expenses in savings after paying your down payment and closing costs, but I would venture to guess that few people actually have that. But most banks require you to have some cash reserves at closing. They won't close a loan if your down payment and closing costs will wipe out all of your cash.

Make sure that you understand how high you can go not just in terms of price, but also property taxes, which will impact your monthly payment. A good mortgage loan officer will use a certain property tax ceiling for a preapproval (and it helps if that is stated on the preapproval letter); make sure you know what your loan office was using as a property tax estimate when issuing your preapproval. You don't want to put an offer in on a house with $11K in annual taxes when your loan officer was factoring in $8K in taxes!

Also, research and get recommendations for home inspectors and real estate attorneys now, so that when you find a home you love, you are ready to move quickly. It's always in the buyer's interests to move as quickly as possible to contract.

Please feel free to contact me if you'd like some help with your house hunt, or if you just want questions answered. I am a full-time realtor (and an attorney), and I've worked with and am working with several LIF'ers. I had a closing today with an LIF customer, and one just last week. I am very service-oriented and strive to make home buying as stress-free and fun as possible for my customers!