My First House (page 2 of 5)
Saving to Buy
The path to ownership begins long before you set foot in your future home. The first step is to build your savings account to prepare for the up front costs of purchasing a home. Items you'll need to save for include:
Down Payment: To get approved for a loan you will need to have at least 3% of the purchase price down in cash. The more money you can put down the more likely you are to be approved, you can also qualify for a better rate and lower costs.
Private Mortgage Insurance: If you finance more than 80% of your homes value you may be required to carry PMI. PMI is extra insurance that lenders require for buyers with less than 20% down payment. PMI has an important in the mortgage industry because it helps borrowers purchase homes with as little as 3-5% down payment. Ultimately, what PMI does is protect the lender against a loss if a borrower defaults on a loan. This means you can buy a home sooner without waiting years to accumulate a large down payment.
Closing Costs: These are fees required to obtain a mortgage and transfer ownership of the home. They include the costs for attorney's, appraisals, title insurance, recording of mortgage, loan origination fee and points. You may have to pay these fees yourself, however you may ask the seller to pay them for you or you can have them financed with your mortgage.
Reserves: Just because you have enough funds to make your down payment doesn't always mean you're ready to take on home ownership. Often times the lender requires you have savings left over after the purchase of your home. This assures that the mortgage can be paid even if you experience financial difficulties. MVFCU considers 3 months of mortgage payments as a good reserve.
Repairs: If you plan to buy a fixer-upper, appliances or new furniture you'll want to include these costs to your savings plan.
CLICK HERE to continue to Step 2 (Understanding mortgages & getting pre-approved)
Calculate Your Savings Plan