OK.  So now you’ve been dreaming about the perfect dream house but you also understand that not every house is perfect and you may have to maybe make a little bit of a compromise.  Maybe you don’t need a garage. A carport or driveway will do.  It doesn’t really need hardwood floors right now. You can always put new floors on later. OK. So METRO is a little bit farther down the road.  No biggie.

However, you now realize that you don’t quite have the $150,000 or $300,000 or $500,000 in the bank or even under the mattress.  Maybe there’s not even that much in your 401(k) or Thrift Savings Plan (for you Federal Government workers).  Where is the money going to come from?  Good question.

How Much Money Do I Need?

In today’s credit challenged environment, getting a mortgage is not the piece of cake it use to be.  No more can you “just sign here” and get a loan.  Nope.  You need a real job and real money for a real down payment for your house.  Not only that, you have to be able to prove it.  In fact, in the State of Maryland (after all this is the MD Suburbs of DC) lenders must be able to prove that you can, in fact, repay the mortgage.  No fudging.

The mortgage isn’t the only thing.  There are “closing costs” associated with buying a house.  These typically include (but are not limited to):

  • one half of the transfer and recordation fees that the State and County want (note: first-time home buyers get a break on the State part but not the County part)
  • lender fees such as the cost of the appraisal, underwriting, document preparation, courier, and more
  • title company fees such as the title search (to make sure you’re getting clear title to the property), title insurance (for both the lender [mandatory] and you [recommended]), the title binder required by the lender, and more
  • home owner’s insurance
  • courier fees, FedEx fees, etc. and so on.

My rule of thumb is that the closing costs in and of themselves run about 4% to 5% of the sales price of the house.  These go on top of the 3½% down payment you’ll need if you get an FHA loan.

Luckily, in the current environment, the Seller may be willing to pay some or all of your closing costs.  So you may only need to come up with the down payment in cash.Home Equity Line of Credit

Speaking of  mortgages — what’s out there?

The FHA Mortgage

This is the new meat and potatoes mortgage.  At least, it is in this neck of the woods.  You only need a 3½% down payment (in cash) and there is a lot of flexibility as far as documenting your ability to repay the mortgage or your current qualifications to obtain a mortgage. This is because the government backs you up.  They tell lenders and banks that if you default they’ll pay them back for you. Sweet.  Of course, you’re paying private mortgage insurance which is your money thrown into a little kitty with a bunch of other people’s money to pay back the banks in case you default. Still, it’s a great deal and the loan limits have been raised to $729,750 (in the MD Suburbs) so it really covers just about any home you want to buy.  If you’re looking for a home that costs more than that FHA is not your loan.

The VA Mortgage

The VA Mortgage is also government backed.  It’s really geared toward Vets and dependents of Vets.  In other words, if you’re in the military or have been in the military or your related to someone who is in or has been in the military, this may be the perfect mortgage for you.  Yes, there are some hoops you have to jump through but it’s worth it.  This is one of the only 100% financing vehicles around.  That’s right: Zero Down Payment.  You still need the closing costs but, again, the Seller may pay those for you. The loan limits for VA loans in this area are currently $812,500. You can buy a nice house for that amount of money.

The Conventional Mortgage

This is the one for people who want to buy the high dollar homes or, for any number of other reasons, don’t want or need a government backed loan.  This includes people who have 10% or 20% of the sales price for a down payment (a 20% down payment eliminates the need for private mortgage insurance which saves you money on you monthly mortgage payments).  It encompasses the so-called Jumbo loan (i.e., loans over $417,000) and may or may not have a better rate depending on a number of factors.

The Bottom Line

Here’s the deal: you need money to be able to buy a house.  If you have good credit, verifiable income and a couple of dollars in the bank you can get a loan to buy a house. How much money depends a lot on what you have saved up, what you might have access to in the way of your savings (retirement or otherwise) and the possibility of a gift from the Bank of Mom and Dad.

You should probably investigate this part early on.  My suggestions is to stay away from the online folks who will run your credit a hundred times and try to lure you in with a pretty rate only to load you up with extraneous fees or switch the rate at the last minute.  You need to have a reputable and experienced loan officer who will answer the phone when you call or respond to your e-mail.  A good loan officer will take the time to explain the process to you and walk you through any questions you have about your mortgage.

Believe it or not, I can help. I have worked with several excellent lenders throughout my real estate career and would be happy to refer a couple of them to you to talk to about home financing. Shoot me an e-mail or give me a call at 240-417-9100