LRC Homebuying Edition - Day 9: Your Capital

LRC Homebuying Edition - Day 9: Your Capital

New to the Live Richer Challenge: Homebuying Edition? Learn more about it HERE.

Need to catch up? Click on the link where you left off and then come back!

Day 4: Qualifying Income

Day 5: Debt-to-Income

Day 6: Review, Reflect, Relax.

Day 7: Weekly Inspiration

Day 8: Your Character

Today’s Easy Financial Task: Determine how much money you have for a home purchase.

How to rock this task:

  • Read the definition of capital.
  • Learn the difference between closing costs, down payments, and cash reserves.
  • Figure out how much capital you have available for a home.
  • Use the SmartAsset Mortgage Calculator to get an idea of how much money you need.

Welcome to the 9th day of the LRC: Homebuying Edition!

Today we’re talkin’ about capital — dollars, dineros, the big bucks.

The capital element of the 5 C’s stands for the liquid assets you use for your home purchase. Liquid assets are assets you can quickly turn into cash and include physical cash, money in deposit accounts, stocks, bonds and CDs. On the other hand, jewelry or property are examples of non-liquid assets.

The capital you have is used for your down payment, closing costs, and cash reserves.

Let’s discuss what these three things are:

Down Payment

Your down payment is the upfront money you give for the real estate transaction. The down payment required for a mortgage depends on the loan. A down payment generally ranges from 3% to 20%. We’ll talk about various loan programs in tomorrow’s task!

Closing Costs

Closing costs are necessary to complete a real estate transaction. Closing costs typically cost anywhere from 2% to 6% of the home purchase price. There are several different expenses that are under the “closing costs” umbrella. Some of them are situational. Here’s an overview of the most common expenses:

  • Lender origination fees: Fees lenders charge to process your loan.
  • Discount points: An extra cost you may pay upfront to lower your interest rate.
  • Title search and title insurance fees: Before buying a home, a title search is done to make sure no one else has a claim on the property. Title insurance is coverage for you and the lender in case someone should pop up in the future and say they own your new home.
  • Credit report fees: Lenders charge you for the credit report they pull.
  • Appraisal fees: An appraisal is done to determine the value of the home to make sure the lender is lending an appropriate amount. We’ll talk more about appraisals next week.
  • Inspection fees: Home inspections are an important process that you don’t want to penny pinch on. Inspections are what alert you to problems with the home before you buy it. I learned this the hard way when a house that I was going to buy was FULL of problems. I recommend getting your inspection FIRST, then the appraisal. If the inspection shows something is seriously wrong with the house, you don't want to pay the extra money for an appraisal.
  • Transfer taxes: Some states charge transfer and recordation taxes when you transfer ownership of a property from one person to another.
  • Upfront mortgage insurance: If you pay less than 20% down on a home, there’s typically some sort of mortgage insurance that may be charged upfront, and then on a monthly basis to cover the lender in case you default. (We’ll discuss this more later.)
  • Homeowners insurance: Homeowners insurance is protection for your home. Generally, lenders want to see you have insurance at closing.
  • Attorney fees: In some states, an attorney is required. In others, they are not. If you use an attorney, they will represent you in the transaction.

These fees can add up, but there’s a bit of good news. For some mortgages, your seller is allowed to contribute to your closing costs, which is called a seller concession or seller’s assist.

Seller concessions (or seller’s assist) can be negotiated into your deal to relieve you of having to pay all of these costs out of pocket.

Cash Reserves

Cash reserves is additional cash you have beyond what’s needed for the down payment and closing costs. This is usually several months worth of mortgage payments that you have saved to show lenders you’ll be able to handle the mortgage if you run into financial trouble. The cash reserves you need will depend on your situation. Having good credit and a low debt-to-income ratio can help you here. For example, borrowers with a score of 640+ and debt-to-income below 50% typically don’t need cash reserves.

Why is having capital important?

The more money you have, the better. Yes — there are mortgage programs that may require little money down upfront, but putting more money down has its benefits. Here are a few:

  1. It can reduce your interest rate. A low-interest rate can save you money over the course of your loan.
  2. A higher down payment can also decrease your monthly payments. Putting more money down upfront means you owe less money on a loan. This reduces your monthly payment.
  3. It can eliminate mortgage insurance. We’ll cover what mortgage insurance is in detail next week. For an overview, mortgage insurance is an extra cost you pay if you put less than 20% down on a home.

Your Task

Today’s task is to run your numbers. Figure out how much capital you have for a down payment, closing costs, and cash reserves.

The SmartAsset Mortgage Calculator here is an AWESOME tool you can use to find out how much home you can afford, given the capital you have. The calculator breaks down estimated costs and how much capital you may need.

DON’T GET DISCOURAGED: The money you need may seem high at first, but there are mortgage products that require less money down. There are also various programs that we’ll cover that may be able to help you cover additional costs.

After reviewing what cash you have and what cash you may need, get excited for tomorrow’s task! Tomorrow we’re going to run through the details of some popular mortgage products.

Any questions? Leave a comment below. Remember to reach out to your partners. Encourage each other throughout the Challenge. Check into the Dream Catchers: LIVE RICHER group as well.

Share what you’ve learned today with your tweeps:

Today I learned what capital I need to buy a home. Day 9: #LiveRicherChallenge Click To Tweet

Live richer,

Tiffany

You can reach out to me here:

Twitter: @thebudgetnista

Instagram: @thebudgetnista

Facebook: The Budgetnista

Private Forum: Dream Catchers : LIVE RICHER


Want to work through the Live Richer Challenge: Homebuying Edition in a workbook? It's part of a bestselling series!

Click the link below and get your copy.


P.S. If you haven't already... Get your Challenge Freebies from our Live Richer Challenge: Homebuying Edition coauthor, Netiva Heard. Click the pic below if you'd like to learn more about Netiva's services. You'll receive a discount! Just let her know you're a Dream Catcher.


P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.

P.P.P.S. Don’t forget to get your free Live Richer Challenge: Homebuying Edition Starter Kit. Download it HERE.

Get FREE Weekly Goodies!

Join the mailing list to get FREE weekly budgeting goodies directly to your inbox.
Tiffany “The Budgetnista” Aliche is quickly becoming America's favorite, personal financial educator. The Budgetnista is also an Amazon #1 best selling author (The One Week Budget and Live Richer Challenge), sought-after speaker and teacher of financial empowerment.
DISCLAIMER: Please read this Disclaimer carefully before using the www.thebudgetnista.com Website (the "Website") operated by CLD Financial Life ("us," "we," "our") as this Disclaimer contains important information regarding limitations of our liability. Your access to and use of the Website is conditional upon your acceptance of and compliance with this Disclaimer. This Disclaimer applies to everyone, including, but not limited to: visitors, users, and others, who wish to access or use the Website.

By accessing or using the Website, you agree to be bound by this Disclaimer. If you disagree with any part of this Disclaimer, then you do not have our permission to access or use the Website.

Tiffany “The Budgetnista” Aliche is not a lawyer, accountant, credit analyst or investment broker. Information Tiffany Aliche provides during her presentations is for informational and educational purposes only. Tiffany Aliche assumes no responsibility or liability for any errors or omissions in the content provided. The content Tiffany Aliche shares in this video, workshop and/or presentation is provided on an "as is" basis with no guarantees of completeness, accuracy, usefulness or timeliness. The information shared is from Tiffany’s personal experience wherein she increased her credit score, reduced her taxes, increased her earnings and shifted her business organization. Any reference to credit scores that “Jump like Jordan” should be taken figuratively—not literally. Any reference to credit scores that Jump like Jordan is not a guarantee that your score will increase similar to Tiffany Aliche.

Tiffany Aliche’s personal success is not a reliable indicator of future results. It is very important to do your own analysis before making any financial, legal or accounting decisions based on your own personal circumstances. You should take independent financial advice from a professional, or independently research and verify any information before implementing any information that Tiffany Aliche shares and you wish to rely upon.

Affiliate Disclaimer: We participate in the https://thebudgetnistablog.com/favorite-things/ affiliate advertising program, which is designed to provide a means for us to earn fees by linking to their products or services on our Website. The fact that we participate in this affiliate program means that https://thebudgetnistablog.com/favorite-things/ compensates us for the inclusion of links that are clicked on and our reviews.

Changes: We reserve the right to amend this policy at any time without any prior notice to you.
© Copyright 2020 - The Budgetnista Blog - All Rights Reserved
magnifier
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram