June 29, 2021

Down Payment - How Much Cash Do You Need to Buy a House?

Interested in buying a housing in Tacoma, WA this year? How much cash will you need?

Even for those with plenty of money in the bank and big credit card limits, it rarely makes the most sense to pay all cash for a home. The wealthiest and most sophisticated typically finance a good portion of their home purchases, and maintain mortgages on their properties. 

Of course, many others don’t buy, and stay stuck as renters, or in homes they don’t love, because they think they need more money to purchase a new home. 

So, how much cash do you need to buy a home?


Down Payments For Buying A House In Tacoma, WA


Down payments are one of the three main expenses associated with buying and financing a home in Washington State. So, how much down payment do you need for a house in Tacoma?


The 20% Rule

One of the most common misconceptions is that you must have a 20% down payment to buy a home. Unfortunately, this myth keeps many from trying to buy homes of their own each year. 

Some banks and mortgage lenders may want this much down. Though a good local Tacoma mortgage broker can likely find you a variety of low and even no down payment mortgage loan programs to choose from.

If you do have 20% to put down there can be some benefits, though you will typically find many more advantages from buying sooner with a lower down payment versus trying to save faster than house prices are going up.

Some of the pros of putting 20% down include:

  • Lower loan interest rates 
  • Easier loan underwriting and approvals
  • No need for private mortgage insurance (PMI)
  • Lower monthly payments, due to borrowing less

Considering the average house price in Tacoma, WA was around $530,000 at the beginning of 2021, an average 20% down payment would require around $106,000 in cash.


No & Low Down Payment Financing Options


There are multiple no down payment and low down payment mortgage programs for those who want the benefits of homeownership or a bigger home now.


FHA Home Loans

FHA mortgage loans only require a 3.5% down payment. These are great loans for low interest rates, easier qualifying, and flexible cash to close options.


VA Home Loans

These loans for military service members, veterans and their family members offer 100% financing. That means zero down payment is needed.


USDA Home Loans

USDA loans also offer no down payments for homes in specific qualifying areas. 


Conventional Mortgages

Some conventional mortgage programs will allow you to put down just 3% or less. 


Your 401 or IRA

You may also be able to borrow or withdraw money from your 401k or IRA plan without penalty for use as a down payment on a home. 


Closing Costs


Closing costs are the second of the three main expense groups that determine how much cash you need to close on your home. 

Closing costs can range from around 2% to 6% of the property purchase price. The more expensive the home, typically the lower the percentage. The cheaper the home, the higher the percentage due to fixed costs associated with buying and financing a home.

These costs can include:

  • Appraisal fees
  • Home inspections
  • Title insurance
  • Homeowners insurance
  • Lender fees
  • Escrow fees
  • Closing and doc prep fees
  • Flood certifications
  • Surveys
  • Recording fees
  • Pest inspections

You’ll also bring cash out of pocket to cover items like:

  • Prorated property taxes
  • Prorated insurance premiums
  • Prorated interest and mortgage payment
  • Homeowner or condo association fees

Note that some loan programs will allow the seller or Realtors to help pay for some or all of your closing costs.


Moving Costs


This is the third category of costs which involve cash for your home purchase. Most home buyers overlook this expense and then start coming up short after stretching themselves financially on the above items.

If you plan to move into this property, then you will have some form of moving costs. 

The biggest portion of this can be the actual moving cost. You may only need to pay gas if you own your own truck. Or you may need to rent a moving truck, or choose to hire professionals movers who do everything from packing up your belongings to loading and driving the truck, before unloading and unpacking your items on the other end. 

According to My Moving Reviews, the average moving cost within Washington State is between $2,437 to $6,964. It can cost a lot more to move from out of state or another country. Moving costs are dependent on the size and weight of items, how far they are traveling, and the level of service you want. 

You may also have storage costs if there is a gap between selling your old place or moving out of a rental and buying and closing on a new home. 

Other related costs here can include turning on new utilities, transferring utilities, and deposits for electricity, water, waste, etc.


Reserves


You’ll also want to have some cash left in the bank after you close. In fact, many mortgage lenders will want you to prove you have at least 2 months of expenses or mortgage payments left in the bank. If you are buying an investment property, this can be as much as 6 months of expenses for each property you own. 

This helps to ensure you can keep up with your payments in an emergency. Like pandemic related lockdowns, civil unrest, ob layoffs, and when incurring unexpected medical bills. 

You may also want to budget for items like:

  • Celebrating with a housewarming party
  • Decorating and improving your new home
  • Ongoing maintenance and reserves 

About the author 

Joe Tafolla

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