Home Loan Budget Advice
October 10, 2023
What follows is not investment advice. These are tips on preparing for the unexpected during your home loan journey. If you apply for an FHA mortgage and qualify for the lowest down payment under the FHA program (3.5%), you may benefit from that low down payment.
But unexpected costs can creep up along the way. Do you have a contingency fund for issues like compliance inspections, pest inspections, hazard insurance, or initial property tax issues?
If these are new concepts to you, it might be a good idea to build in extra saving time for them. However, there are other strategies to consider in addition to having a contingency fund.
Save Early, but With Intent
“Save early” is a Home Loans 101 type piece of advice. But what’s not so entry-level? Knowing how much to save and which expenses to save for.
For example, an appraisal costs upwards of $400 depending on the housing market and other factors. Yes, saving that money for the appraisal is another Home Loans 101 thing to advise.
But if you don’t realize that an appraisal might result in a set of required repairs AND a compliance inspection, you have a better picture of how much you need to REALISTICALLY save for the appraisal, assuming a worst-case outcome where you also have to pay for the inspection and not just the appraisal.
It pays to save for specific expenses informed by as much information as you can get.
Negotiate With Your Seller
In some cases, you may have an advantage. For example, if a compliance inspection is required because the appraisal revealed some issues needing correction as a condition of loan approval, you and the seller should negotiate who will pay for that and how.
By “how,” we mean whether you are given a break on the sale price of the home, or if the seller will agree to pay concessions up to six percent of the sale price of the home toward your closing cost, or some other form of compensation for the expense of the inspection.
Seller negotiations aren’t as effective in hot housing markets where there is a lot of competition for the existing homes for sale, but when the market has cooled a bit, you may find this is a good option to consider.
Down Payment Assistance
Some borrowers may qualify for a local down payment assistance option, and in such cases, it is smart to investigate this as an option since it frees up more of your liquid cash to use in other parts of the home loan transaction. Your down payment savings could be repurposed to offset closing costs you might otherwise finance if you get outside help with your initial minimum required investment or down payment.
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RELATED VIDEOS:
Protect Yourself Against Identity Theft
A Streamline Refinance Simplifies the FHA Loan Process
Principal Payments and Your FHA Loan
But unexpected costs can creep up along the way. Do you have a contingency fund for issues like compliance inspections, pest inspections, hazard insurance, or initial property tax issues?
If these are new concepts to you, it might be a good idea to build in extra saving time for them. However, there are other strategies to consider in addition to having a contingency fund.
Save Early, but With Intent
“Save early” is a Home Loans 101 type piece of advice. But what’s not so entry-level? Knowing how much to save and which expenses to save for.
For example, an appraisal costs upwards of $400 depending on the housing market and other factors. Yes, saving that money for the appraisal is another Home Loans 101 thing to advise.
But if you don’t realize that an appraisal might result in a set of required repairs AND a compliance inspection, you have a better picture of how much you need to REALISTICALLY save for the appraisal, assuming a worst-case outcome where you also have to pay for the inspection and not just the appraisal.
It pays to save for specific expenses informed by as much information as you can get.
Negotiate With Your Seller
In some cases, you may have an advantage. For example, if a compliance inspection is required because the appraisal revealed some issues needing correction as a condition of loan approval, you and the seller should negotiate who will pay for that and how.
By “how,” we mean whether you are given a break on the sale price of the home, or if the seller will agree to pay concessions up to six percent of the sale price of the home toward your closing cost, or some other form of compensation for the expense of the inspection.
Seller negotiations aren’t as effective in hot housing markets where there is a lot of competition for the existing homes for sale, but when the market has cooled a bit, you may find this is a good option to consider.
Down Payment Assistance
Some borrowers may qualify for a local down payment assistance option, and in such cases, it is smart to investigate this as an option since it frees up more of your liquid cash to use in other parts of the home loan transaction. Your down payment savings could be repurposed to offset closing costs you might otherwise finance if you get outside help with your initial minimum required investment or down payment.
------------------------------
RELATED VIDEOS:
Protect Yourself Against Identity Theft
A Streamline Refinance Simplifies the FHA Loan Process
Principal Payments and Your FHA Loan
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