How Much Cash Do I Need to Buy a Home in Arizona?

How Much Cash Do I Need to Buy a Home in Arizona?

How much you need starts with two simple questions:  How much do you expect the purchase price of the home to be?  How do plan to pay for home (cash or cash+loan)?

In 2010 and 2011, lenders were so cautious with lending practices that it seemed to many that nobody was lending money to home buyers.  Now in 2013, that has certainly changed!  And you have a very wide range of choices in types of lenders and types of loans.  It is now possible to borrow close to 100% of the purchase price of the home.  Generally speaking however, the more you borrow as a percentage of the purchase price the more expensive the loan is both in terms of upfront fees and costs of the loan over time.

What cash you need to have upfront is composed of the following components:

Payable at Purchase Offer

  1.  Earnest Deposit – the money that you put down at the time you make an offer (write a purchase contract) to purchase the home.  It is typically 1% – 3% of the purchase price, in the form of a personal check or wire transfer to the title company.

Payable at Closing

  1. Down payment – the money that add to your earnest deposit to make up the total down payment.  This money is due at closing and is generally wired to the title company one to two days before closing.  The sum of the earnest deposit and down payment represent a percentage of the purchase price and are typically 5% or more, depending on the type of loan you are acquiring.
  2. Appraisal and Inspection fees – as the buyer, you typically pay for the property appraisal (required by lenders and good practice for cash buyers) and home inspections including pest (termite) and sometimes special inspections for roof, pool, foundation, etc.
  3. Closing Costs – these are the costs associated with originating and processing the loan, researching the title, insuring the title for your lender, prosessing the title search, filing fees, perorations such as property taxes, HOA fees, recording fees.
  4. Generally your first month’s interest, principle, taxes, and insurance are collected at time of closing.  (The good news is you won’t have a payment due for 30+ days.)

Total cash requirements typically run in the 3 – 6 % range of the mortgage amount or around 1% of the purchase price if you are a cash buyer.   They can be higher with certain types of mortgages (for example, FHA and VA) where up front mortgage insurance costs are charged at closing.