I’ve been flooded with questions lately by both Buyers and Sellers, and I love questions, because it means you are thinking. I would like to take a minute to share what some of my clients have been thinking about, since you might have the same questions racing through your head as well.
For Buyers, the more commonly asked question is how much money they need to buy a house. Unfortunately, there are too many variables that make question easy to answer. A credit score, downpayment and loan program are going to be the determining factors for this. Those factors, are not only going to determine what your costs, but they are also going to decide your buying power as well.
A 1% variation in an interest rate can mean a 10% change in your buying power. The debt to income ratio will also determine your buying power. Having a great credit score means that you show a history of paying back loans, and therefore you are less of a risk to a bank of defaulting on a loan. If you are going to buy a house or planning on moving up, your income has to reflect that you can afford to handle more debt. If a lender thinks you are just making it, with your current debt – you are not going to get approved for more.
What I generally tell Buyers, is to plan on at least 2 percent of the sales price, not including your down payment. Lenders escrow 3-8 months for taxes up front, which are typically the biggest portion of closing costs. You will also need 1% of the sales price in earnest money at the time we go under contract. In addition, you will need an inspection and title fees. So, the short answer is 2% of the sales price, but that does not include lender fees, which, depending on your loan program, could mean another 2%.