Monday, October 29, 2007 10:47 AM
How much do we need for a deposit/down payment?
Between the time you make an offer on the house and the closing, you could lay out tens of thousands of dollars that will be held in a special account -- called an escrow account -- by your lawyer or the seller’s lawyer. The exact amount will vary greatly, anything from $1,000 for an “earnest money deposit,” when you make an offer of, say, $100,000 for a 20% down payment on a $500,000 house. Not all banks require a 20% deposit these days, but be aware that if you put down less than 20% or even get a deal that offers no down payment, you’ll likely have to pay an additional monthly fee for private mortgage insurance, otherwise known as PMI.
Also keep in mind that there will also be some other costs besides your down payment before your first mortgage payment is due. These include mortgage application fees, appraisal and inspection fees, and all closing costs, which could total between $5,000 and $15,000.
Also factor in “cover your butt” costs. It’s not enough just to make it to move in day. The goal is to comfortably afford to stay there. It’s a good idea to keep an emergency reserve of three to six months' of your annual income so you don’t lose your home if you or your spouse loses a job or is injured. It’s also smart to put 1% of your home’s value in a CD or money market account in case of emergency, say for example if the boiler bursts or the roof needs repair.