Can I Qualify for a mortgage with limited savings?
Funds needed to close
To determine the funds you need to bring to closing, you need to consider down payment, closing costs, and pre-paid expenses. We've covered all three in the previous modules. Now, let's add it all up for a typical, $250k home purchase.
Most of your closing costs are fixed costs, meaning they are the same regardless of your loan amount. The appraisal, survey, and title company's work will cost you about $1600. The lender has attorneys that prepare the loan documents, and we'll estimate $400 for their fee. In addition, the government will charge you about $125 to record all the documents.
Your lender probably will charge one or more fees for processing and underwriting your loan. For this example, let's use $700 for the sum of those fees. The sellers typically will agree to pay your real estate agent's commission, but if they don't, you'll need to add that to your total.
The pre-paid expenses depend on the home you choose and how effectively you shop for property insurance. For a $250k home, we'll estimate a yearly tax bill of $6000 and a yearly insurance premium of $1500. Remember that you must pay the firt year's insurance premium at closing as well three months of property taxes and insurance for the escrow buffer. That adds $3375 to your funds to close.
Finally, we need to add the pre-paid interest. Your monthly mortgage payment includes the interest earned during the previous month. Your first mortgage payment is due the first day of second month after closing, meaning more than a month will have elapsed before your first payment. Your lender captures the interest that will be earned during that first, partial month at closing. For this example, we're going to estimate $400 in pre-paid interest.
Add it all up, and we get $6600 in closing costs and pre-paid expenses. Add this amount to your down payment to get the total funds you need to bring to closing.
What if you haven't saved that much? Next time, we're going to discuss different ways you can augment your savings to get to the closing table.