October Q&A Series Q8: How much cash do I need to buy a $500k home in Portland?

Question 8: How Much Cash Do I Need to Buy a $500,000 Home in Portland?

Ask ten people how much you need to buy a house and you’ll hear “20% down” about nine times. It’s the most repeated number in real estate, and for a lot of buyers it’s simply not true. What is true: the down payment is only one of several pots of money, and some of it is due long before closing day.

The money comes in three waves

Before closing (within days of an accepted offer)

• Earnest money. A good faith deposit held by escrow. It isn’t an extra cost, because it’s credited toward your purchase at closing, but you need it in cash early.
• A general home inspection plus specialists for older Portland homes: sewer scope, oil tank search, sometimes Radon. You pay these whether or not the deal closes. (Budget for $900-1200, depending on size of home.)
• Often collected by your lender upfront.

At closing

• Down payment. Many loans allow far less than 20%. Some conventional programs start at 3%, FHA at 3.5%, and some programs for veterans require nothing down.
• Closing costs. Lender fees, the lender’s title policy, your share of escrow, recording.
• Your first year of homeowners insurance, prepaid interest, if purchasing in an HOA you will have a transfer fee and 1-2 months of payments, and a starting balance for the account that pays your property taxes and insurance.
• Buyer’s agent compensation, if any. If the seller isn’t covering it, or covers only part, the difference may be yours. We clarify this in writing before you ever make an offer. (Question 9 explains how.)

After closing

• Money left in the bank after you get the keys. Some loans require it. All homeowners need it.

Two sample scenarios

These are illustrations, not quotes. They assume a $500,000 purchase, a sample 6.5% interest rate and a conventional loan. Your lender will give you real numbers.

The 5% option includes mortgage insurance in the monthly payment, which is the trade for keeping more cash in your pocket today. Neither choice is automatically smarter. It depends on your savings, your monthly comfort zone and how long you plan to stay.

Ways to lower the cash you bring

• Seller credits toward closing costs, if you negotiate them. (Post 10 compares credits with price reductions.)
• Down payment assistance programs, which vary by income, location and lender.
• Gift funds from family, documented the way your lender requires.

Start with the lender, not the listings

The best first step is a conversation with a local lender who can run your actual numbers. I’m happy to introduce you to a few I trust, and then we can build a search around your preferred budget and monthly payment. If you are qualified to purchase $1m, but only want to spend $850k. Then we are only going to shop up to $850k. Once you understand your budget and payment, then you set the parameters of our search.

Wondering what your number really is? Let’s figure it out before you start shopping.

Examples are illustrative and should be reviewed with a licensed mortgage professional. Rates, programs and costs change.