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Hello Everyone, welcome back. Thank you for coming again. Today the topic of conversation is the big one for a lot of buyers. It’s, how much money do I need to buy a home? Okay, so let’s get started. I want to say thank you so much for coming, and please allow me to introduce myself. My name is Justin Simmons with DKC Realty Group. We are based in the Bronx, and we’re licensed in New York State and Connecticut. And if you’d like to get more up-to-date information regarding real estate and the market, please be sure to click the SUBSCRIBE button and hit the bell next to it to get notifications as soon as they come out.
Now, back to our topic at hand. How much money do you need to buy a home? My recommended amount is 10% of the sales price of the home that you’re purchasing. Now, the first thing that might come up, especially for folks who are pretty well versed in this is, I thought that 20% was the gold standard that I should hit, right, the 20% down payment. Okay, so let’s talk about this first. 20% or really, really more like 25%, but I’ll explain why that is later, is ideal if you have it. The reason I’m talking 10 is because the majority of the clients that I’ve worked with just don’t have 25% available at the time they’re looking to get their home. So we’re working with less usually.
Now, if you got that 25%, it’s gonna be beneficial to you. So if you have it, I definitely recommend using it in the purchase of your home. It’s gonna eliminate mortgage insurance, you’re not gonna have to worry about that, that’s gonna save you money every month. You’re gonna get the lowest interest rate possible, because you have that 20% down payment. And you’re also gonna have a significant amount of equity from the beginning when you purchase your home. Equity, I like to think of it as cushion. The more cushion you have, the better. But like I said, the majority of my clients don’t have the 25% they need. So let’s start with what’s more attainable and can still help folks accomplish their real estate goals and dreams.
What makes up this 10% that we’re talking about? Now in terms of this 10%, let’s use a concrete example so it’ll make sense to us. So let’s talk about a single family home in the Bronx, good condition, with three bedrooms, three bathrooms, maybe a parking spot, a garage. All the stuff we really like. Let’s assume that that house is selling for $500,000, okay? 10% of $500,000 is gonna be $50,000. That’s gonna be our target amount. What’s gonna happen with that $50,000? Well it’s covering a couple of things.
So, first we have our down payment. Now we mentioned %20 down earlier, but your down payment could be as low as 3% with a conventional loan or three and a half percent if you’re using an FHA loan. So it could be 3% or three and a half percent. That’s how low it can go. Now it’s not three or three and a half percent of 50,000, it’s three or three and a half percent of 500,000, the price of the house that you’re purchasing. So, for argument’s sake, let’s say it’s 3% of the 500,000. That’s gonna give us $15,000 towards your down payment. We’re gonna take $50,000 which is all the funds that we have, and we’re gonna subtract 15,000 for our down payment. So now we’re at $35,000 after we covered our down payment. If this is sounding good to you so far, please do me a big favor, just slam that like button really quick, it really helps with the engagement and views.
Now, second thing we’re gonna be covering from that $50,000 pop that’s now 35,000 is our closing costs. So closing costs are fees and costs associated with your transaction. Okay, you’re going to have them if you are selling or buying a home, it’s unavoidable. Now, the amount that it will be will vary, so I usually give my clients a range of between 4 to 6% if we’re talking about New York. There’s certain tax that we gotta pay, so you’re gonna have certain fixed costs, and then other things will vary depending on the title a company use, the attorney you hire, all that stuff. But for argument’s sake, and because I need round numbers to do math quickly, let’s say our closing costs is gonna come out at 5% flat. So we’re gonna take that 5% and subtract, we’re gonna take 5% of $500,000 which is 25,000, and now we’re gonna subtract it from the 35,000 that we have left after our down payment. So now we got $10,000.
Now, the reason I mentioned that 25% as the gold standard and not 20, is 20% is for your down payment. However, you still having closing costs which like we said are usually between four to 6%. So if you add your closing costs with your down payment, that’s where you get that 25 or so percent number that I was using as a reference point.
Now, you may be thinking at this point, Justin, great guy. I subscribed, I just slammed that like button for ya, what’s going on with this extra $10,000? Do I need that for my purchase? In our example, no, right? You don’t need that $10,000 for your purchase. But I want you to have it or more because I want you to have a basis for an emergency fund after you moved in and bought your home. Things happen in homes all the time, so it’s better to have a cushion so you’re prepared for it. So what could come up? Maybe there’s modest roof repairs that are needed, maybe something happened to the boiler. Maybe you knew going in from your inspection that there was an item you wanted to have addressed and now you have the money already set aside to fix it or upgrade it. Or maybe something else goes on that’s not house related, could be a car expense or another unexpected bill comes up. The more cushion you have after your home purchase, remember you’re still gonna have a large amount of debt every month with your mortgage payment, the better, the easier it’s gonna make it for you to manage all the challenges that come up in life. So that’s why I always like to have my clients with a little bit of cushion. If we can get more, six months’ worth, like a lot of the financial experts are talking about, great, love it, but a starting point is better than being cash strapped from jump.
Now the big question you may be asking is, can I do this with less than 10%? You got me, you got me, the answer is yes, yes you can, yes we can. Now, how do we do that? It’s usually gonna be one of two routes you’re gonna take. Sometimes, it’s both of the routes together. It’s gonna be down payment and closing cost assistance and/or it’s gonna be a seller’s concession. I got a video popping up right here I want you to check out. It’s gonna teach you a way you may qualify for up to $15,000 in down payment slash closing costs assistance. So go check that video out, and there’ll be another video you can see after, regarding sellers concessions. Thank you all so much. Hit that SUBSCRIBE button if you haven’t done so already and I’ll talk to you soon, bye.