Most of the clients I help need to finance their home purchase. Even though I always recommend that you pay “cash” if you are able, in reality, that is not what many home buyers are able to do, especially first time home buyers.

I always recommend that a you should obtain a “pre-approval” letter from a “local” lender or bank before you search for a home. Many people I meet do not always understand the “true” cost to buy or finance a home in Central New York, and many “out of the area” lenders mis calculate some of the costs involved.

Calculating your true monthly mortgage payment is very important. Many online calculators on sites such as “Zillow” are not accurate when used incorrectly, as many home buyers do calculate the correct property tax rates or other fees associated with the mortgage process.  A “local lender” should be able to provide you with a breakdown of your monthly mortgage payment.

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I am going to give you a “guide” to follow, before you speak to your local lender or bank, and please understand this is only a guide and estimate, but this will give you a better understanding of the mortgage process.  First, you should understand what type of mortgage you are applying for. Generally speaking there are 4 common mortgage products.

  • Conventional Loan – Typically for 30 years, but can be a 20, 15, or 10 year mortgage. The typical down payment required starts at 5% of the purchase price, but many borrowers apply 20% as a down payment. Some local lenders do offer a 3% down payment conventional mortgage, however, these are special programs with certain requirements.
  • FHA Loan – An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment. Typically a 30 year mortgage. The minimum down payment is 3.5%. This is a very common mortgage product in Central New York. The credit score requirements are also more flexible. Also, you can add up to 6% of closing costs into your mortgage if you are short on cash reserves. (mortgage expense)
  • VA Loan – This is a ZERO down payment mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders. This is typically a 30 year mortgage for American veterans or their surviving spouses (provided they do not remarry).
  • USDA Loan – This is a ZERO down payment mortgage loan from USDA Rural Development Guaranteed Housing Loan Program. It is only offered to rural property owners by the United States Department of Agriculture, and you must meet certain requirements. There are limited properties available in Onondaga County that would qualify for this loan. This program is more popular in Oswego, Madison, and Cayuga County.

EXAMPLE: Monthly mortgage payment and required costs (Estimate)

For a $100,000 home using a 30 year – FHA mortgage:

  • $3,500 as a down payment.
  • $3,800 prepaid property taxes. (The estimated yearly property taxes on a $100,000 home in Onondaga County is about $3,800.00, roughly 3.8% of the purchase price, so if you do not have a 20% down payment, you will have to escrow your property taxes and prepay your property taxes as part of your closing costs. This is on of the reasons why closing costs are higher in this area.)
  • $700.00 homeowners insurance (estimate)
  • $1,000.00 Attorney fees (estimate)
  • $450.00 Appraisal fee (estimate)
  • $800.00 Loan origination fee (estimate)
  • $1,000.00 Mortgage insurance premium (estimate)

To purchase a $100,000 home in The Greater Syracuse NY area with an FHA loan you may need $10,000 to $12,000 in total costs. (estimate).

What if I do not have the money for closing costs? That is a great question, and under FHA loan guidelines, you can add up to 6% of the approved closing costs to your mortgage. So, in this example, you could add $6,000 to the price. The new purchase price would be $106,000. The seller would still receive $100,000, but they would allow you to add the closing costs to the purchase price.

Another option would be to get “gift” money from a family member. There are specific rules regarding this, so please consult with your mortgage lender.

So what would the monthly payment be based on $106,000 with 3.5% down payment, assuming a 4% interest rate on a 30 yr FHA loan? The estimated monthly mortgage payment would be $940.00 (estimated), which includes principal, interest, taxes, and insurance. This does not include any private mortgage insurance fees.

So let’s recap, for a $100,000 home, the total closing costs including the down payment would be roughly $10,000 to $12,000 and the estimated monthly mortgage payment would be a $940.00 per month, depending on current interest rates etc…

For more information please contact Bob McTague at 315-882-6610