How Much Money Do I Need to Buy a House?

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According to just about every real estate survey that’s been conducted in the past few years, potential home buyers say that having enough for the down payment is their biggest obstacle to homeownership.  In addition to the belief that they don’t have enough money for the down payment, most people have very little idea about how much additional money they might need to buy a house. Here’s everything you need to know about how much money is required to buy a house.

Down Payment

First, there’s the down payment.  The median home price for houses that have recently sold in the Denver Metro area is about $400,000.  A median sold price of $400,000 means that half of the homes sold for less than $400,000 and half of the homes sold for more than $400,000.

Not considering down payment assistance programs like CHFA (Colorado Housing and Finance Authority), which covers your down payment, if you were going to buy a house for $400,000, you would need 3% of that amount, or $12,000, for a conventional loan, and 3.5%, or $14,000, for an FHA loan.  VA loans do not require any money down, so the down payment requirement would be $0.

Here’s where we are so far for a $400,000 purchase price, just counting the down payment requirement:

Conventional loan requires $12,000

FHA loan requires $14,000

VA loan requires $0

Closing Costs

But there are other costs associated with buying a house.  The main one is the closing costs, which would be approximately $5,000.  The actual amount depends on how much your homeowner’s insurance and property taxes are, but $5,000 is a pretty good estimate.

Here’s where we are now, with both the down payment and the closing costs included:

Conventional loan requires $17,000

FHA loan requires $19,000

VA loan requires $5,000

Inspection

What other costs are there associated with buying a house?  Just the cost of the inspection (not the appraisal, which is already included in the closing costs mentioned above).  The inspection should be about $400-$500.

Assuming it’s $500, here are the total amounts you would need for the various types of loans:

Conventional loan requires $17,500

FHA loan requires $19,500

VA loan requires $5,500

Options

What can you do if you don’t have that much?  Here are a few options:

  • Get a CHFA down payment assistance loan.  Total costs for that should be about $5,000 – $6,000.
  • We have other no-down payment loans available.  Those will only require about $2,000 of your own money.
  • If you have a relative who will give you a gift, you might not have to pay anything from your own funds.  This is an extremely popular way to get the funds to buy a house.
  • If you have a relative who will lend you the money, you might not have to pay anything from your own funds, although you will have to pay the money back to your relative.
  • If you have a 401(K) or an IRA, you may be able to borrow the money from those retirement accounts without paying a penalty.  Check with your retirement account administrator to see if there are any limitations with the 401(K) or IRA that you have.

The best advice we can give anyone who is thinking about entering the housing market is not to listen to people who tell you that you need 20% down to buy a house.  They are mistaken. Most people who buy houses do not have 20% down.

To find out how much money you will need to buy a house, contact us today.  We can get you pre-approved and you can be on your way to homeownership tomorrow!

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