As a Realtor in Mt. Shasta, CA, I deal with this question all the time. The truth is there’s no one-size-fits-all answer, but I’ve laid out an example scenario below that will get a first-time homebuyer moving in the right direction.
Let’s say you want to buy a house for $200k. If you’re getting a conventional loan, the bank typically wants to make sure you have at least 20% equity in the house, so they feel safer lending you the money. (NOTE: There are other loan products available besides conventional. Work with your lender to determine the best one for your situation).
You can get by with less than 20% down, but then private mortgage insurance (PMI) will be required, which will bump your monthly payments up by a couple hundred bucks or so. Eventually, once you do have 20% equity in your house, you can refinance, ditch the PMI payments, and lower your monthly mortgage payments.
So, to avoid PMI, and put 20% down, you’ll need $40,000 right off the bat.
Closing costs are typically divided equally between the Buyer and Seller. I usually tell Buyers to plan on paying roughly 2% of the purchase price ($4,000 in this case) for closing costs. Usually it’s less, occasionally it’s more, but that’s a safe enough bet for an estimate.
Then, there’s the Buyer’s Inspection period, at which time they can have any inspection they want (home, roof, septic, pest, etc.), as long as THEY pay for it. Home and pest are common, and that can run $1,000 in our area. In larger cities, those inspections will cost more. Just to be safe, let’s say $2,500 for inspections.
If we add up the down payment, closing costs, and inspections, we’re at $46,500, which is just over 23% of your purchase price of $200,000.
Now, the variables may very well change from purchase to purchase. Some of these items (closing costs, inspections) could be points of negotiation during the purchase process, and some loan products will offer more flexible terms.
However, to get a general idea of their in-the-door costs, first-time homebuyers can multiply the purchase price of the home times .23 (in our example: $200,000 x .2325 = $46,500), and if that number gives them sticker shock, they should keep saving!
Disclaimer: These figures are estimates. In order to determine accurate numbers for their specific purchase, Buyers should work in tandem with a Realtor, Lender, and Escrow Officer.
Nikolas Allen is a Realtor® in Mt. Shasta, California. He helps people through the complex process of buying and selling their homes. He put less than 20% down on his house, and is currently paying for PMI.