Gather your savings and investment account statements and add up your available funds.
Decide how much you want to set aside for other savings goals, moving costs, and renovations for your new home. Subtract these amounts from your total available funds.
Now, subtract an additional amount for an emergency cushion. A good rule of thumb is at least three to six months' worth of expenses.
The end result is the maximum available cash for closing – cash for closing includes your down payment, possible closing costs, and inspection fees.
In addition to your down payment, there are many costs associated with finalizing your loan and home purchase. Closing costs depend on a lot of things – the price of the home, your down payment amount, and the kind of loan you choose.
You can make an estimate, using a home price that is typical for the area you are looking to buy in.
Typically, closing costs (not including your down payment) range from 1.5-5% of the home purchase price. Using Advanced Funding as your Utah mortgage broker the average is between 1.5-2.5%.
Subtract your closing costs estimate from your available funds for closing to determine your maximum down payment.
New homeowners often find things that need fixing or discover that they need additional furniture for their new home. Moving expenses and utility set-up fees are also common. When calculating how much you can afford for a down payment, make sure to set aside some money to cover these expenses.
In most cases, you need a down payment of at least 3 percent of the home price. There are programs that may require less of a down payment but will cost you more in closing costs and possibly a higher interest rate.
When your mortgage broker determines your interest rate and loan costs, they will look at your down payment in increments of 5 percent. For example, if you have enough saved for a down payment of, say, 8 percent of your home price, think about whether you could save up a little more before buying, or choose a slightly cheaper home, so you can hit the 10 percent mark and receive better loan terms.
Low-down payment options usually come at increased cost.
At this point in the homebuying process, the numbers you are working with are estimates. It’s a good idea to give yourself a cushion in your estimates, so you’re not left scrambling for money.