How Much Should You Put Down On A Florida House?
How much should you put down on a house? The simple answer is “as much as possible”, though there’s more to it than this. Few of us can afford to buy a house with cash. Let’s look at the factors that affect the purchase price of a house and how much you should put down on the property. We’ll also explain how these factors determine what lenders are willing to lend you.
The Cash You Have Saved
There may be an impulse to put all the cash you have down on the property, but that’s not always the best choice. For example, you don’t want to put 5,000 dollars more down toward the home and have to rack up credit card bills to fix little things that need to be fixed. You may need a few hundred dollars to pay movers or cover last minute expenses like a stolen pool sweeper. Others forget additional expenses like a professional engineer inspecting the foundation, a second appraisal when you’re concerned about the valuation, or closing costs on the loan. Don’t put 3,000 more down on the property and then roll the same amount in closing costs into the home loan, or worse, take out a more expensive loan to pay for them. However, you need to be careful not to get comfortable with debt, going out and buying new furniture and totally redecorating.
Florida Mortgage Insurance
If you don’t put 20 percent down on a house, you’ll have to pay private mortgage insurance. This reduces the risk the bank takes by loaning you money to buy a house that doesn’t have much equity in it. A side benefit of putting more money down on the house is that your house payments will be lower. Note that you can ask for mortgage insurance to be waived once you’ve achieved 20 percent equity in the property.
Carrying Costs in Florida
Lenders will determine whether or not you can afford the house by factoring the ongoing expenses of the property in addition to the monthly house payment. Unfortunately, Florida has some of the highest homeowner’s insurance rates in the country thanks to all those hurricanes. And you’re going to pay the highest insurance rates when you buy a house on the coast.
The other factor lenders take into account is property taxes. Florida may not have an income tax, but they have to pay the bills somehow. And they do so by having high property tax rates. Property tax rates average around one percent of the value of the property paid every year. Homes for sale in Coconut Grove surpassed 500 dollars per square foot in 2018. This means that a thousand square foot home costs around half a million dollars. And the property tax bill for an owner occupied property is around 5,000 dollars a year. If you buy a property in an HOA, that cost has to be factored into the carrying costs, as well.
Lenders will verify that you can comfortably afford to pay the taxes and insurance in addition to the mortgage payment on the property. If you’re borderline, they may reject you. Or you could select a cheaper home. Be careful not to overstate your income or minimize expenses to get approved for a home loan, because your credit is trashed if you are late on a house payment.