How Much Income Do I Need To Buy a House

How Much Income Do I Need To Buy A House In 2022

Gustan Cho Associates are mortgage brokers licensed in 48 states

One of the most frequently asked questions is how much income do I need to buy a house in 2022. In this article, we will answer the question commonly asked, How Much Income Do I Need To Buy A House In 2022? The housing market is booming. Despite the coronavirus pandemic, home prices have skyrocketed in 2020 and 2021.

Demand for homes remained strong in 2020 when there were more buyers than the inventory of homes. The 2022 housing market is expected to be stronger than in 2021. Despite the Democrats’ control of both the House of Representatives and the Senate and inflation soaring, mortgage rates are expected to remain low in 2022 and well into 2023.

Mortgage Rates Forecasted To Increase In 2022

Interest rates are normally high when both houses of Congress are under the control of Democrats. Joe Biden and Kamala Harris supposedly won the 2020 election for President and Vice-President. There are fierce allegations Joe Biden and Kamala Harris have cheated and evidence of election and voter fraud in the 2020 election.

Income Required To Purchase a Home

Even with Biden and Harris in the White House, experts and analysts do not expect a disruption of the strong housing market. Many homebuyers today are still under the impression you need a 20% down payment to purchase a home. This is absolutely not true. We will discuss how much money homebuyers should have including reserves in this article.

What Are The Costs For a Home Purchase For First-Time Home Buyers

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How Much Income Do I Need To Buy A House is one of the first questions by first-time homebuyers. Homebuyers do not need a 20% down payment on a home purchase.

There are two types of costs when buying a home.

  1. The down payment on the home purchase
  2. The closing costs for the mortgage loan origination and third-party closing costs

The down payment is easy to figure out. It is a fixed percentage of the home’s purchase price. With the exception of VA and USDA loans, all home purchase mortgage loans have down payment requirements. VA and USDA loans do not require any down payment.

Can I Buy A House With No Down Payment?

Lenders offer 100% financing on VA and USDA loans at competitive mortgage rates due to the government guarantee. VA loans are only for active and/or retired members of the United States Armed Services with a valid certificate of eligibility (COE). VA loans are the best loan program in the nation but are only limited to veterans. USDA loans are only for homebuyers in areas designated as rural by the U.S. Department of Agriculture Rural Development.

What Are The Down Payment Requirements on FHA Loans?

FHA loans, for example, require a 3.5% down payment of the home’s purchase price for homebuyers with at least a 580 credit score. Homebuyers with credit scores under 580 and down to 500 FICO require a 10% down payment.

Down Payment Requirements on Conventional Loans

Fannie Mae and Freddie Mac require a 3% down payment on conventional loans for first-time homebuyers. First-time homebuyers are defined as homebuyers who had no interest in homeownership for the past three years.

Down Payment Requirements on Conventional Loans

Otherwise, Fannie Mae and Freddie Mac require a 5.0% down payment on conventional loans. Government and conventional loans only require a 3% to a 5% down payment. However, specialty mortgages such as Jumbo and Non-QM loans require larger down payment requirements.

Down Payment Requirements On Jumbo And Non-Conforming Loans

Down Payment requirements on non-QM and alternative mortgage loan programs is anywhere between a 10% to a 30% down payment. For example, if the borrower had a bankruptcy and/or a housing event, then the non-QM wholesale lender will require a 30% down payment. If the bankruptcy and/or foreclosure has been seasoned for longer than one year, then the down payment required could be a 20% down payment. The less risk the non-QM lender has, the lower the down payment requirements are. We will cover more on down payment requirements on non-QM mortgages in the next paragraph.

What Are The Down Payment Requirements On Non-QM Mortgages

Non-QM loans normally require a 20% down payment on a home purchase. All home purchase transactions require closing costs. However, closing costs vary depending on the borrower, what county and state the home is located in, and the type of property. Borrowers will not know the exact amount of closing costs until the latter part of the mortgage process.

What Are The Closing Costs of a Home Purchase

Borrowers will get an estimated figure of the potential closing costs when they get the Loan Estimate (LE). The Loan Estimate needs to be provided to the borrower by the loan officer three days after the borrower completes a full mortgage loan application (1003). Most homebuyers only have to worry about the down payment on a home purchase and not the closing costs. Closing costs are normally covered with seller concessions and/or a lender credit. In the following paragraphs, we will discuss more on the money required to purchase a house.

How Much Income Do I Need For First-Time Homebuyers

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First-time homebuyers can normally qualify for a home purchase loan with a 3% to 5% down payment PLUS closing costs. VA and USDA loans do not require any down payment. Lenders will offer 100% financing on VA and USDA loans at competitive mortgage rates due to the government guarantee. All home purchase transactions come with closing costs. Closing costs are any costs and/or fees that are incurred by homebuyers in the homebuying and mortgage process.

The Difference Between The Down Payment and Closing Costs

The down payment is a fixed percentage of the home’s purchase price. However, closing costs vary and are dependent on the city, county, state of the property as well as the type of property. The borrowers’ credit profile and the type of mortgage loan program have an impact on closing costs. The down payment and closing costs on a home purchase can be gifted.

How Much Are Closing Costs On A Home Purchase?

The actual closing costs are not known until further down the mortgage process when all the exact figures come in. However, homebuyers will get a Loan Estimate (LE) three days after they have completed the mortgage loan application. Listed on the Loan Estimate will be a list of potential closing cost estimates. The actual closing costs will be disclosed in the Closing Disclosure.

Itemized Closing Costs on Loan Estimate

The maximum amount of money needed as closing costs will be listed and itemized on the Loan Estimate. The Loan Estimate is normally over-disclosed. What this means is the loan officer will inflate the estimate of potential closing costs. The reason for over-disclosing potential closing costs is that if the loan officer under-discloses the itemized estimated closing costs by 5% or more, the loan officer is liable to pay the difference. Therefore, most potential closing costs that are itemized on the Loan Estimate are higher than the actual costs.

How Seller Concessions Can Pay For Closing Costs

Most homebuyers do not have to worry about closing costs.

Most homebuyers do not have to worry about closing costs. They just need to come up with the down payment on a home purchase. Closing costs are normally paid for by the home seller giving the homebuyer a seller concession towards closing costs. Seller concessions, often referred to as seller contributions can be used for closing costs of homebuyers BUT cannot be used for the down payment. Seller concessions can be used only for closing costs.

Overage In Seller Concessions

Any overage in seller concessions needs to go back to the seller. It cannot be pocketed by homebuyers. Why have any overages in seller concession gone to the home seller? Homebuyers cannot keep any overage in seller concessions. Loan officers will use the overage in seller concessions to buy down mortgage rates with discount points.

Seller Concession Credits To Homebuyers

Closing costs range anywhere between 2% to 8% or sometimes more than the purchase price of the home. There are maximum seller concessions a home seller can contribute depending on the mortgage loan program.

The following are the maximum seller concessions allowed:

Can You Pay Closing Costs With Seller Concessions

Below is the maximum a home seller can contribute towards a homebuyer’s closing costs. HUD, the parent of FHA, allows up to a 6% seller contribution from the home seller. The Veterans Administration (VA) allows up to 4% seller concessions for buyer’s closing costs. USDA Rural Development allows up to 6% seller concessions from sellers.

Fannie Mae and Freddie Mac allow up to 3% seller concessions on owner-occupant primary conventional loans and 2% seller concessions on investment property loans. In a buyer’s market, most home sellers will offer seller concessions. However, the housing market is booming nationwide. More and more renters are pulling the trigger on buying a home sooner than later.

What Happens When Sellers Will Not Agree To Seller Credit?

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In a standard housing market, getting a seller concession is no problem. Therefore, homebuyers do not have to worry about coughing up the closing costs. All they need to worry about is the down payment on a home purchase. However, sellers can tell homebuyers to go pound sand and that they are not offering seller concessions on a seller’s market.

Strong Housing Market Hurts Seller Concession Credits

The housing market is expected to be booming in 2022 into 2023 despite the coronavirus pandemic and high unemployment rate. The Democrats control the White House and both houses of the U.S. Congress. Despite allegations of Joe Biden and Kamala Harris getting elected to the White House by cheating and more than enough evidence of election and voter fraud, the housing market is still expected to remain strong with more buyers versus an inventory of homes. Mortgage rates are still under 3.0% on a 30-year fixed-rate mortgage.

Sellers Market Make Seller Concession For Homebuyers A Challenge

Home prices in San Francisco are the highest in the nation at $1,100,000 for an average two-bedroom home.  HUD and the FHFA have increased FHA and Conforming Loan Limits for the past five years due to rising home prices. More renters are deciding to become homeowners. You do not need a 20% down payment to purchase a home. Closing costs can be covered with either a seller concession and/or a lender credit. Lender credit is when the lender will give you credit for a part and/or all of your closing costs in lieu of a higher mortgage rate.

  • While there are advantages to having a seller concession there can also be downsides. If a seller is not desperate to sell, they may not agree to pay part of the closing costs which could mean that you ultimately are not able to purchase the property. For this reason, it is important to save enough money to cover all costs when purchasing a house in case a seller’s concession does not work out. Buying a home is one of the most expensive purchases of your life and as such, it is important to be prepared. Buyers should not only speak with a qualified real estate agent but also a mortgage broker and once a home is found, the seller, to figure out exactly what concessions might be possible. Buyers should also look into loan prequalification. This can put the seller’s mind at ease as it is a letter stating that you are eligible for a mortgage loan. Ultimately this can help speed up the home buying process. Some real estate brokers offer sellers commission rebates when their homes sell. If a seller can get a commission rebate from their broker then that can help them pay for seller concessions. If a deal is consummated then all parties win when compared to a deal that doesn’t get done.

The coronavirus pandemic has changed the business models of companies. Many companies now are offering their employees remote job positions.

The Freedom To Live Anywhere For Remote Workers

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Remote jobs were not something new. However, due to the coronavirus pandemic, many companies have turned their employees from reporting to a brick-and-mortar locations to remote workers. The great advantage of being a remote wage earner is they can live in any city and/or state they want due to their remote work status. Due to the coronavirus pandemic, many workers who had to report to a brick-and-mortar location became remote wage earners. Many renters that rented high-cost apartments in cities like Chicago can now relocate to any place they want.

Mass Exodus of People Moving Out of the High Taxed States To Lower Tax States With Affordable Housing

The nation has seen a mass exodus of high-taxed states to lower-taxed states with affordable housing. Many renters from Chicago, Los Angeles, New York are moving out of state to lower-taxed states with affordable housing and buying homes. Governors, mayors, and lawmakers need to think twice before increasing and/or creating new taxes.

This is a huge problem Illinois Governor JB Pritzker has. Pritzker keeps on increasing taxes to keep up with the budget deficit due to financial mismanagement. The net result is individual taxpayers and small business owners are fleeing Illinois like never before. Other states led by Democrats like New York and California are facing the same problem Illinois is going through.

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