Down Payments and Closing Costs
Institution for Savings gave more than a million dollars last year toward everything from safe and affordable housing to youth education programs to organizations that promote public health and human services.
Saving in advance for a down payment on your home may seem like common sense, yet many of us are slow to do it. Saving for a down payment shouldn’t be intimidating. In the past, it was recommended to put down 20% of the price of the home as a down payment, but these days, the percentage can be much smaller, especially for first-time buyers. To determine what you need to save, use one of these helpful calculators provided by the Institution for Savings (IFS), one of the largest mutual savings banks in Massachusetts and a strong competitor in the residential mortgage arena.
When saving for a down payment, you also want to consider closing costs. Closing costs are all fees associated with completing the sale of a home, including title insurance, appraisal fees, broker fees, and interest. This cost can range between 3%-6% of the purchase price. There are ways to manage closing costs, like comparing lenders and choosing a loan with no points. IFS offers lots of options for no-point products, like first time buyer credits for low to middle income buyers in certain circumstances. You can also negotiate with the seller to have them cover some or all of the closing costs.
A First-Time Home Buyer's Checklist
Start
With interest rates at historic lows and people spending more time at home than ever, this is the right time to buy. With a market this hot, you’ll want to be prepared from the get-go. Here’s a first-time buyer’s checklist to all things homebuying.
A First-Time Home Buyer's Checklist
How Much Can I Afford?
Next
Step one of successful homebuying is to ground your search in reality. Know what you may afford to spend before you set your heart on something out of your price range. Be realistic, but allow yourself a bit of wiggle-room. As always, it is important to read everything carefully and seek the advice of a legal professional if you don’t understand something.
Calculating mortgage payments is a great place to start. Many companies offer online mortgage payment calculators. To use these efficiently, you’ll need to know your yearly income, monthly bills (insurance, utilities), debt amount (credit cards, school loans, auto, etc.), and the amount of cash you’ve saved to put down as a deposit (generally 3–20% of the home price depending on the type of mortgage you qualify for, plus closing costs). You’ll also need to know your credit score.
A First-Time Home Buyer's Checklist
Next
Pre-Qualify
The next step is to pre-qualify for a home loan. In today’s market, sellers receive multiple offers, so it’s crucial to have your finances in order before you make an offer.
Pre-qualifying means a lender has reviewed your finances and offered you a conditional loan amount. While it’s tempting to go through a large national bank, first-time buyers can improve their chances of success by financing through a community bank in the area in which they plan to buy. Community banks are built on relationships and provide a level of customer service you won’t find from a big lender. Plus, community lenders offer highly competitive rates and typically are willing to work with first-time buyers to provide the best possible loan.
To pre-qualify, you’ll need proof of income, assets, and employment, as well as personal identification.
A First-Time Home Buyer's Checklist
Find a Realtor/Start
Your Search
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When home listings online are plentiful and easily accessed, it’s tempting to launch your home search right away concurrent with the other steps. However, most first-time buyers benefit from using a real estate agent. Having a real estate agent represent you as a buyer has advantages with no downside (the seller pays for your real estate agent). An experienced real estate agent who works within the community in which you are looking to buy can guide you through what can be an intimidating process. They’ll know the best areas that fit your needs and often have inside information on homes that may not yet have reached your Zillow feed.
Finding a good realtor is often as easy as asking a friend who’s already bought a home. If you’re moving to somewhere new, look at online reviews. Don’t be afraid to meet with a couple of potential agents and see if you click. Agents love meeting prospective buyers!
A First-Time Home Buyer's Checklist
Visit Open Houses
and Tour Homes
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As fun and informative as scrolling through online listings can be, it’s nothing compared to seeing a home in person. Often your real estate agent will arrange private viewings with the seller’s agent or accompany you to a listing’s open house. You can also visit open houses on your own. Seeing a home in person allows you to assess the vibe, the lighting, the space—ephemeral qualities that are tougher to communicate through photos.
When you see a house you like, don’t let any emotional attachment prevent you from asking tough questions. Think critically, bring a tape measure to size up rooms, do your due diligence. Remember, you’re looking for a home that best fits your needs. Compromises may be needed. There are many houses to see—you’ll likely visit at least 10 to 20 before you find The One—so don’t fret if it takes some time.
A First-Time Home Buyer's Checklist
Submit an Offer
Next
Found the house you want? Congratulations! It’s now time to submit an offer. Your agent will help you decide on an amount. You’ll want your offer to be one that’s both fair and competitive and also corresponds realistically to your finances. Don’t wait to submit. If you think you want it, go for it. You can always rescind your offer within a couple days if you have a change of heart. Your agent will also help you establish contingencies (“walk-away” clauses in a contract, which allow you to back out of buying a house if certain conditions aren’t met), obtain disclosures (the seller’s responsibility that reveal any property defects), and establish a closing timeline (generally 30 days).
A First-Time Home Buyer's Checklist
Get a Home Inspection
Next
A proper home inspection is worth every penny. Ask your agent to recommend a trusted inspector. A home inspection will reveal exactly what condition your prospective home is in, from the roof to the electrical, the HVAC, the foundation and everything in between. This inspection will identify any issues the seller may not have disclosed and reveal what may need remediation. The inspection will also highlight any potential home improvement projects you may want to tackle after closing.
A First-Time Home Buyer's Checklist
Get an Appraisal
Next
A home appraisal is required by your lender to make sure your financed offer does not exceed the value of the home. Like your inspection, this is for your protection; you want to make sure you’re not getting fleeced. An appraisal takes into account “comps” (sale prices for comparable homes in the area), square footage, appearance, amenities, and overall condition.
A First-Time Home Buyer's Checklist
Renegotiate
Next
Following the inspection and the appraisal, you’ll have the opportunity to renegotiate your offer based on what you’ve learned. If only minor repairs are needed, you may choose not to renegotiate at all. But if the inspection reveals something major or the appraisal comes in much lower than what you’ve offered, you may consider changing your offer based on repair costs, or ask the seller to do the repairs themselves. If the seller is unwilling to budge on price or conduct the necessary repairs to bring the house into good condition, be prepared to walk away. This happens. While disappointing, it’s better than being stuck with a problem home.
A First-Time Home Buyer's Checklist
Close the Sale
Start Over
Take a deep breath. You made it. On closing day, you’ll sign a giant stack of paperwork transferring ownership into your name. Don’t be intimidated. Your closing officer will help you understand what each form means. Closing costs and down payment are now due. Once everything is in order, you’ll receive the keys to your new home.
If this process sounds like a lot, it is. But rest assured, thousands of people go through it every day. It’s an exciting milestone in life, and you may even learn some tricks for the next time you decide to buy!
Use of $7,000 Cash on Hand
Closing Costs
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Down Payment and Closing Costs
Down payment $3,115
Loan origination $1,031
Points paid $1,105
Other closing costs $1,750
Down payment
$3,115
Loan origination
$1,031
Points paid
$1,105
Other closing costs
$1,750
Remaining cash $0
Insurance is also required by lenders. Private mortgage insurance (PMI) is obligatory until you’ve paid 20% of the mortgage principle; homeowners insurance is required for the life of your loan. While PMI is provided by your lender and typically wrapped into your monthly mortgage payments; as homeowner, you choose and cover the cost of homeowners insurance separately. Homeowners insurance is an absolute asset, often helping to cover unexpected costs that arise when owning your own home. Shop around for the best price to save money.
Private Mortgage Insurance (PMI) and Homeowners Insurance
Once you own a home and property, you are required to pay property taxes to the city or town where your home is located. Some lenders will roll this into your monthly mortgage payment, but it’s essential to understand this additional cost when budgeting. Property taxes can vary significantly based on where the home is located and your home’s appraisal, ranging from $1000 to $10,000 per year or more. When you home shop, pay attention to the property tax estimates usually provided on each real estate listing. When in doubt, ask your realtor or calculate your own here.
Property Taxes
Some neighborhoods and/or developments have a monthly or annual homeowner’s association (HOA) fee. These fees are collected and managed by a condominium or HOA for things such as lawn and garden care, snow plowing, and or care of residential amenities like a pool or tennis court. This cost is separate from your mortgage and property taxes, so be sure to factor this into your affordability budget.
Homeowners Association and Condominium Fees
Often, new homeowners are moving from an apartment or smaller living arrangement where they may have been required to pay for only some or none of monthly utilities costs such as electricity, water/sewer, heat and hot water, cable/internet, etc. As a homeowner you are responsible for all these costs. Keep in mind also that many utilities require an upfront deposit or connection fee to begin service.
Utilities
It can be expensive to move! Don’t forget that you will need money set aside to move your belongings from your old place to your new home, especially if you’re hiring a moving company rather than the do-it-yourself plan which includes renting a truck and enlisting the help of family and friends.
Considering all the hidden costs of homeownership can be intimidating, but don’t be discouraged. Careful saving and planning can get you into your dream home. Institution for Savings offers this handy rent vs. buy calculator to help you weight your options. Not yet time? Keep up with your savings goals. When the right time to buy comes, consult with a reputable lender like IFS who can prequalify you for a mortgage before you start your search. Pre-qualification is a useful way to know exactly how much you and your lender agree you can afford.
Visit institutionforsavings.com for more info.
Moving Costs
Monthly Payment Breakdown
Rent payment $772
House payment $1,407
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Initial tax savings $227
Initial principal payment $282
Net house payment $898
Rent payment
$772
House payment
$1,407
Initial tax savings
$227
Initial principal payment
$282
Net house payment
$898
Monthly Payment Breakdown
Net house payment
Rent payment
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Rent payment
$772
House payment
$1,407
Initial tax savings
$227
Initial principal payment
$282
Net house payment
$898
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The Hidden Costs of Homeownership: Are You Prepared?
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Institution for savings
Buying your first home is an exciting time. Most homebuyers begin by calculating the mortgage they can afford and then look for houses in that price range. But what many prospective buyers often don’t factor into their homebuying budget are the costs after you find the home of your dreams. Being aware of these costs upfront empowers homebuyers to properly plan and comfortably afford their new home.
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The Hidden Costs of Homeownership: Are You Prepared?
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To date, 2022 has been defined by ongoing trends in the labor market as the effects of the Great Resignation continue to reverberate across all sectors of the economy. Since the spring of 2021, employees have left their jobs in record numbers, with 33 million seeking a new job or career. Employees have more bargaining power than they have had in decades, and employers are finding themselves in the unenviable position of struggling to retain their workforce.
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Member FDIC | Member DIF | Equal Housing Lender