First-Time Homebuyer Funds For Closing- you need to have your downpayment saved plus your closing costs…
Post Updated With More Currect Guidelines 10/24/2022
The wisest first-time homebuyer is going to get some answers prior to walking into the mortgage lender’s office or giving information online to make that application. There are not any questions off-limits.
Asking the right questions upfront will save you time, energy, and less paperwork in most instances.
This post will give some of the important answers to help you out with your first-time homebuyer funds for closing questions from an underwriter.
Do You Need To Pay a 20% Down Payment?
The answer is no. Downpayment of 3-5%. Many individuals think that the only way to obtain a Conforming Conventional Loan is to have a 20% down payment. This is no longer the case and the funds required can now come from flexible sources for conventional, just like FHA.
There is one drawback for over 80% financing and the loan must have Private Mortgage Insurance (PMI). This amount varies and the lower the loan value the less premium is.
Mortgage insurance is paid monthly just like your taxes and homeowner’s insurance.
First Time Homebuyer
First-time homebuyers usually have many questions and often they cannot find in-depth answers. One of those important questions is what kind of assets is acceptable for those borrowers who are new to the workforce, with little savings?
The Beginning Stages – Getting Your Assets In Line For Application
- First, you need to know of course, how much money you already have saved.
- Next, how long have you been saving these funds?
- What is the source of your current savings?
- Can you document the source of your current savings, if you have not had these funds in your account for the past 60 days?
- Do you have large deposits?
- What are the large deposits from?
- Can you document the large deposits?
- Are your current savings sufficient for the down payment for your loan?
Do You Know What The Estimated Funds For Your Loan Will Be?
If you do not know what amount of funds you need, here is a quick way to estimate those funds.
Examples of First-Time Homebuyer Funds For Closing [by an underwriter]:
Conventional Loan 95% Loan To Value
Sales Price x 95% equals Loan Amount
Loan Amount x 5% = down payment
- For 95% financing-, you will need a 5% down payment plus closing costs over and above what the seller is allowed to pay (if applicable).
- Closing cost average if paying 5 to 10% down payment is 3%. If paying down 10% to 25%, seller concessions 6%
Conventional 95% Financing is a 5% down payment – Funds -May Be a Flexible Source and will be determined by the following:
- The down payment- if 80% or higher for a 1 unit property – no minimum for the borrower’s own funds is required by FNMA.
Conforming 97% Loan To Value – based upon the product type-certain guideline and restrictions apply
| First -Time Homebuyers |
|---|
Sales Price x 97% = Loan Amount
Loan Amount x 3% = Down payment
- For obtaining a 97% conventional conforming loan, you will need a 3% down payment with no more than seller concessions of 3%.
The 97% conventional loan will allow a flexible source of funds for the down payment of 3%. Applicant must be a first-time homebuyer with a mortgage amount not greater than conforming loan limits- at the present it is:
Maximum Loan Amount for 2022 **based upon the loan limits within each applicable county where the property exists.
Get The Full Scope of Loan Limits Here
| Units | The Contiguous States, the District of Columbia, and Puerto Rico | Alaska, Guam, Hawaii, and the U.S. Virgin Islands |
| 1 | $647,200 *updated for 2021 | $970,800 |
Acceptable Gift Funds may come from:
- A gift from a family member (blood-related individual)
- It may be from a domestic partner who has lived with the borrower for the past 12 months
- A fiancé or fiancée
- Community second mortgage
- Grants
- Cash on hand that is seasoned – usually 60 days (2 mo.)
***If the unit is a 2-4 unit dwelling, or second home:
the borrower must make a 5% down payment from their own funds.
First-Time Homebuyer Funds For Closing May Be Verified In the Following Manner For Closing Cost and Transfer of Gift Funds
The lender is required to document the transfer from the donor’s account into the borrower’s account. Documentation is the following:
- The donor must present a copy of the check and the borrower must have their deposit.
- Donor’s withdrawal slip and the borrower’s deposit slip.
- A copy of the donor’s check made payable to the closing agent, or
- The settlement statement showing receipt of the donor’s check
The most efficient way to avoid a lot of paperwork is to wait until closing to receive the gift funds. All gift funds at closing may be processed and made payable to the closing agent by certified check, cashier’s check, or other official checks. Those funds must come from the donor’s account.
List Of Estimated Closing Cost – To Help You Estimate The Closing Cost * varies at each lender
These closing costs are typically about 3 to 5% of the purchase price of the subject property.
Normal fees include: **All fees are estimates, and there may be other fees, check out the Loan Estimate example below. The fees- are determined by the sales price, the higher the SP, the higher fees will be
- Lender Origination Charges** * 1 % typical but can be more- of the loan amount **see the estimates on the CFPB loan estimate
- Recording fees – * $80 +-
- Appraisal fees – * $425 – $500+- *depends on details and location area * product type, etc.
- Credit Report fees – * $75 +
- Processing &Underwriter fees – * $300 – $500 +- – depends upon the Lender
- A Title Binder – * $600 +
- Title Insurance * Lender Policy *$1000 +- *estimate +- Depends upon Mortgage Amount, etc.
- The Title Search * $1,000 *estimate +-
- Title *Settlement agent or Attorney * $500 +_
- Survey fees * $350- 500 +
- Flood Determination *if applicable * $30 +
- Tax Service Fee * 75 +
The above estimates for closing costs are only “estimates.” These costs will vary by the lender, the property location, the loan amount, etc. These are NOT set in stone. You should always ask whomever you are seeking a mortgage from…their estimated costs
Escrow Items Include
- paid 12-month hazard insurance policy + approximately 2 months of escrows
- property taxes * approximately 6 months
- pre-paid interest from the date of closing to the first of the following month
CFPB -Consumer Finance * Purchase – Sample Loan Estimate with estimated Fees
- The Loan Estimate must be received within 3 business days of the Application
**Organization Charges Include –
- underwriting fee
- points (you only have points if you buydown the interest rate)
- application fee
What You Now Understand About Conforming Conventional Assets For First-Time Homebuyers
One thing we hope you have learned today is that a Conventional loan is no longer for only those who have substantial assets for a larger down payment. FNMA guidelines now allow for exceptions to funds and when your loan to value gets to 80%, you can drop the PMI insurance.
The latter is great potential for any borrower. Why, when you make additional payments on your loan, you are of course reducing the principal. This will adjust the loan to value. If you get a bonus or some other windfall, apply it to your mortgage. In no time, you may get to the point that the mortgage insurance (PMI) will no longer be required.
The latter approach to reducing your principal balance will also help you grow more equity as you go forward. Also meaning, even if you decide to sell your home, you have the equity you have paid to purchase another home if desired.
EndNote and Disclosure:
Mortgage guidelines change frequently- AND sometimes vary per the lender guidelines. The lender may be more conserative than Fannie Mae or Freddie Mac. We do our best to ensure updated criteria, but these are estimates at the time of writing.
