How much do I need?

Question

Another new guy question!  I love to have a solid target in mind when I want to accomplish something, so I'm trying to get an idea of how much cash I will actually need to acquire my first property.  I know there are ways to make deals without having my own cash, however that route doesn't interest me at this point.

I'm planning to go the FHA route, so 3.5% of the purchase price down is obvious.  I have heard that I should have (or that FHA requires?) a 6 month reserve?  But basically, I'm just looking to have an idea of the cash I need for my first property.  I don't think it really makes a difference, but I would be shooting for a 3-4 unit.

Can anyone list the expenses I can expect with some ballpark figures?  As always, thank you for your input!

Mark Smith · Answer

@Stuart  Birdsong I do plan on living in one of the units...it's part of my game plan to finally leave the nest!

Stuart Birdsong · Answer

Mark, Just a thought, but you can only use an FHA, with a 3.5% down payment, if you are going to occupy the property or at least one of the units. If you are just purchasing this property strictly as an investment property, you will need a minimum of 15% down and more likely 20-25% down. I hope this helps

Stuart

Mark Smith · Answer

Only needing two months would be nice!  I know a home inspector, so hopefully I can save a little there.  I'll have to start saving my pennies for the rest of the fees.  Thank you for the information @Steve Vaughan!

Steve Vaughan · Answer

Hey @Mark Smith!  I've never done an FHA loan before, but it seems to me they wouldn't require 6-months of reserves plus a DP. The premise is to help get in with less $, right?  2 months of payments in reserve sounds vaguely familiar.

Basically, you will need to pay for your inspection and appraisal (usually) before the closing.  Figure about $3k - $4k on a small multi, 3 or 4plex.  A SFR would be about $1k, total, but both cost more with more units.  (See why I self-inspect with seller-carry?? This be expensive! Wait, there's more!)

Origination fees and such are usually rolled into the loan, but average 1-2% of loan amount.  Interest over 30 days needs paid (to get you to the 1st of the 2nd month), prorated property taxes, lenders insurance, closing escrow fees, etc are all included in DP funds at closing.  In my experience, lender's insurance has been about $300 and my 1/2 closing fees about $750.  Recording fees ($80-$100 here) are paid by buyer as well.

All this is subject to your  local customs, tax rates and when they're paid, etc.  Here owner's title insurance ($800 or so) is paid by the seller.  As are transfer taxes- over 1% of PP.

Hopefully some of this will be off-set with rents and security deposits from the renters.  An old guy I read always closed his multi's on the 3rd of the month. His hope was to get credit for the rents that month without having to physically collect.  Hope this helps!

Some day hopefully you'll be able to self-inspect, self-close and use the seller's money.  I save at least $6k+ each time I buy a multi that way, but it took a while to get there. Cheers!