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Re: 1st Time Home buyer Question/s
As a real estate professional, I agree with the previous poster that it's never too soon to consult a mortgage professional. They can advise you on whether you can be preapproved today and for how much (and if not, what you need to do to get preapproved).
A mortgage professional will look at your household gross income and debt, as well as your credit report, all of which will inform the decision of how much you can be preapproved for. They will also take into account a certain amount of taxes... so in other words, they may say you can be approved for $350K, but that assumes $6K in annual property taxes, which is not realistic for many areas of LI. So you may have to spend $9-$10K on taxes, which would lower the amount of the loan you could get.
How much money you need to have on hand for down payment and closing costs really depends on the type of loan you qualify for (and choose to get, if you qualify for several). With an FHA loan, you need a minimum of 3.5% down; other types of loan programs (VA, Sonyma) you can go even lower. For a conventional loan -- where the credit and debt-to-income criteria is usually higher -- most people put at least 10%, but I've seen as low as 5%. If you put down less than 20% with a conventional loan, you will have to pay pmi, which adds to the monthly cost.
Closing costs are typically 4% to 6% of the mortgage amount (so if you buy a $350K home with $50K down, and a mortgage loan of $300K, your closing costs will likely be in the range of $12-18K). However, closing costs can be rolled into your mortgage via a seller's concession; you don't need to have cash on hand to pay them as an out of pocket cost (although you will have a few out of pocket expenses, such as paying a real estate attorney to handle the closing).
And you really need to think in terms of what the monthly outlay will be to decide on your price point, not the price of the house. Unless you are buying with all cash, it's the monthly payment, not the price, that really matters. If you get preapproved for a purchase price of $350K, you may really only feel comfortable with $325K or some other number. You need to figure out how much you can spend per month on housing costs (mortgage, taxes, insurance) and then work backward to see how much you can spend on a house. The interest rate you get will obviously factor into this, as it will impact your monthly mortgage payment.
But really, as far as money down, you can have as little as $10,500 for a down payment (assuming you go FHA) and you can roll your closing costs in. But money you saved is only one small piece of your entire financial picture, which will dictate whether you can buy a house and what you can afford.
There's no downside to speaking to a mortgage professional now and getting preapproved. Even if you are not yet ready, you can always get a new preapproval down the road, but at least you will have concrete information to start, instead of just making guesses and assumptions.
If you need some recommendations for mortgage people, please let me know. Also, when you are ready, I would be happy to consult with you about your house hunt! I have helped many LIF members buy their houses, and I am always available for questions. (516) 587-7618 (cell) or [email protected].
Good luck!
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