Am I Ready to Buy My First Home - Part 3

Let's plow onward with the Am I Ready to Buy My First Home series with Part 3. In case you missed it, here are links to   Part 1, and Part 2


Am I Ready to Buy My First Home - Part 3


What's In Your Piggy Bank?

Piggy Bank

These days, you cannot buy a home without ponying up some of your own cash. Gone are the days when you could finance an entire home purchase with a piggy back loan. Lenders want to see that their consumers have some of their own skin in the game.  Conventional loans will require at a minimum 10% of the purchase price as a downpayment.  FHA financing does allow for as little as 3.5% down but they are constantly debating whether they'll continue offering these programs.

That's not all the cash you'll need though.  There are a lot of extra fees that add up during a home sale transaction.  Fees for the lender, prepaid insurance, escrow and title fees, courier fees, recordation fees and a whole lot more.  These fees are called closing costs and typically can run between 2-4% of the total purchase price as well.  

That means that if you were buying a condo in San Francisco for $680,000 (average price right now in SF) you would need to have, at a bare minimum, 5.5% of that purchase price in liquid funds to become a proud homeowner. That's $37,400 and that's on the low end of the spectrum.

But you don't want to drain every penny out of your piggy bank right now, do you? Some lender's may require that you have a certain amount of reserves in the bank to cover your payments for a few months, should something happen.  Honestly, this is a great policy for you to adopt for yourself as well.  3-6 months of reserves will keep you from feeling pinched if a hiccup comes along in your life.  It's always a good idea to have a nice rainy day fund in place. 

family house

Buying a home takes a big chunk of change, especially here in San Franicso.  It takes a bit of planning and saving, but if you know what you need and can set goals for yourself, you can find yourself in your very first home in no time.


Stay tuned for Part 4- coming soon.