Cash Needed to Buy a Home
Many buyers, especially first-time homebuyers, do not understand how much cash they need to buy a home. Many people in the Tri-Cities area are spending a lot on rent, making it hard to save up for closing costs and the down payment for their first home. How much cash is needed when buying a home?
Earnest Money and Inspection
Except in very special circumstances, a home buyer needs to have some cash saved to buy a home. Once a seller has accepted the offer, the buyer needs to deposit the earnest money at the title/escrow company within 2 days of an accepted offer. This money is held by escrow and is security for the seller that the buyer will proceed with the transaction. The seller can actually be awarded this money if the buyer misses one of the 
many deadlines in the transaction. Your Realtor should make sure you are aware of all deadlines. If the purchase of the home goes through the earnest money becomes part of the closing costs.
Buyers also need $300-400 for a home inspection. Both earnest money and the fee for inspection are due fairly quickly after the offer is accepted. Buyers should have at least $1000 in the bank at the time they make an offer.
Closing Costs vs Down Payment
Besides earnest money and the inspection fee a buyer needs money for closing costs and down payment, what is the difference? Closing costs are the fees associated with getting your mortgage, and getting the home into your name after closing. Closing costs might include loan origination fees, appraisal, prorated taxes, and escrow company fees and are about 3-5% of the cost of the home. These closing costs are in ADDITION to the price of the home. Occasionally a buyer can negotiate having the seller pay some of their closing costs. In a hot sellers market though, asking for closing costs to be paid by the seller makes the offer less desirable for many sellers. There are ways to off-set this disadvantage when making the offer, a subject for another day.
The down payment DOES go against the total price of the home. A good lender can help you determine how much down payment will be best in your situation. They also can advise you on ways to save for a down payment, and what down payment assistance programs are available. See a lender sooner rather than later to be prepared.
The Numbers
Here is a rough idea of the cash needed to buy a $200,000 home. Earnest money of $500 is the minimum we usually see in our market. Inspection is usually $300-400. Closing costs were calculated at 3%. A lender will help calculate exactly what the closing costs will be. Down payment of 3.5% was used in this scenario. This is a typical amount with an FHA loan. The cash needed to close in this rough estimate is nearly $14,000. Yikes, right?! There are ways to get some or all of the down payment. Next week will be down payment assistance programs, and family gifts!
