As a home buyer exploring your options towards ownership, you may be asking yourself, “What Does it Cost to Buy a House in California?” Let’s review the 3 areas on what the cost will be when buying a house.
The cost of buying a house has 3 areas that we will address, the down payment, upfront out of pocket expense and closing cost. These funds can come from your checking and/or savings accounts, 401K, retirement account, advance from a credit card (will need to qualify with the new payment in the debt to income ratio when taking money from your credit card), gift from a family member, sell something of value with proper paper trail documentation, work over-time for the additional funds, save as much as you can, down payment assistance home loan programs, we can explore all avenues to ensure that we meet all lending guidelines on where the funds to close escrow will be coming from.
We must properly paper trail (source and season) the funds to close escrow with statements (all pages) on where the money will be coming from, can not paper trail cash. Discuss in detail with your loan officer (I welcome to be your trusted professional) on where all the funds used to buy a house will be coming from so that you are able to supply all pages of the documentation to support those funds needed to close your purchase transaction.
The first bucket of funds that you will need is the down payment. There are two purchase home loan programs that do not require a down payment and those are the VA and the USDA loans. FHA requires a minimum down payment of 3.5% of the purchase price, example: a $300,000 purchase price times the 3.5% down, equals to $10,500.
The Conventional purchase program requires as little as 3% for the down payment, example: a purchase price of $300,000 at 3% down is $9,000 for the down payment. On the Conventional program you can put down as much as you wish that is greater than 3%. Putting less than 20% down on the conventional loan type, we will need to address the mortgage insurance.
Once your offer to the seller(s) has been accepted you may need to (speak with your real estate agent on what amount you need to open escrow with known as the EMD – Earnest Money Deposit) deposit a certain amount into escrow. The EMD amount will be accounted towards the down payment or closing cost, that money is not lost, remains in escrow. If you are utilizing the VA or USDA home loan program the EMD will be allocated towards the closing cost.
The second bucket of funds you will need will be for the upfront out of pocket expenses. The expenses will be for the appraisal (required on all traditional home purchase programs), the cost will be determined on the loan type as well as the property type. Inspections that are recommend but not required, home inspection and termite report (as of today VA purchase home loans require a termite report in the state of California and the veteran can not pay for the report). Also, these inspections which are rare can be an out of pocket cost; mold, electrical, plumbing, roof, foundation, well and septic, these reports can be determined based on what the home inspection reports notates.
The upfront out of pocket expenses are third party cost, once those services delivery their completed reports, there are no credit or refunds. These small investments for those inspections can save you money in the long run. You do not want to buy a house that may have issues that will cost you more money to correct the problem. Do consultant your real estate professional on which inspections on recommend in respect to the type of property you are looking to purchase.
These reports will determine if you wish to continue buying the property. During the escrow timeline you have contingency periods on when you as the buyer need to do your do diligence in terms of inspections to protect your earnest money deposit.
The third bucket of funds you will need when buying a house are the closing cost. The cost will be to professional services such as lender fees, title and escrow charges and the buyers pre-paid cost.
The lender, title and escrow fees with vary from services to services, all will be within range of one another. The funds can come from the paper trail mentioned above as well as increasing the interest rate. When the buyer elects to go with a higher interest rate the lender will give a credit towards closing cost because the buyer elected to move froward with the higher rate, basically the credit is coming in the way of the higher rate. That is another way to find closing cost funds, is with a higher interest rate, we will explore this option to make sure it makes since to increase the interest rate to cover some or all the closing cost.
The buyer’s pre-paid items will consist of; homeowner’s insurance paid for one year, pre-diem of mortgage interest, impound account to escrow the property taxes and the homeowner’s insurance. The only traditional purchase program at the moment that does not require the buyer to start an escrow account is the Conventional loan with 10% or more for the down payment, all the other home loan programs requires the buyer to have an escrow account, where the taxes and insurance are paid within the monthly mortgage payment.
Before you begin your home search, speak with a licensed mortgage professional to discuss and review the home loan process. There is no point on looking at houses if you do not have a loan in place first to know what the cost will be for the down payment, upfront expenses and closing cost.
I welcome the opportunity to be a part of your home buying process to present you loan options and inform on ways you can budget to buy a house in California. Call me direct at 909-503-5600 or connect with me HERE to begin your journey of becoming a homeowner.
Thank you for reading my blog about “What Does it Cost to Buy a House in California.” I look forward in hearing from you and discussing your goals of buying a house.