When it comes to buying a house, how much money you should save before making the purchase depends on a few things. You’ll need to factor in how much the average down payment is in your area, how high current mortgage rates are, and how long you plan on staying in the home.

While there’s no one definitive answer to how much money you should save before buying a house, we’ve put together this guide to give you a better idea of how to budget for your new home.

What is the average down payment on a house?

In the United States, the average down payment on a house is around 12% of the purchase price. According to the National Realtors Association, the current median cost of a house is $375,300 so an ideal down payment would be around $45,000. However, these costs can obviously vary greatly depending on where you live. For example, in some parts of the country, the average down payment may be as low as 3% or 4%, while in others it could be closer to 20%.

In addition to the average down payment, you’ll also need to factor in mortgage rates when budgeting for your new home. Mortgage rates fluctuate often and can vary significantly depending on the current market. However, depending on where you live and other factors like your credit score, you could end up paying a higher or lower interest rate on your loan.

How much money should I save before buying a house? 

Now that you know the average down payment and mortgage rates in your area, you can start to calculate how much money you should save before buying a house.

As a general rule of thumb, experts recommend saving at least 10% of the purchase price of your home for the down payment. So, if you’re looking at homes that are around $200,000, you should have saved at least $20,000 before applying for a mortgage.

However, this is just a general guideline. You may need to save more or less depending on your specific situation. No matter how much money you need to save for your down payment, it’s important to start saving as early as possible. The sooner you start, the more time you’ll have to reach your savings goal. Additionally, putting down a larger down payment can help you get a lower interest rate on your mortgage, which could save you money over the life of your loan.

Money needed for a $250,000 house

If you’re looking to buy a $250,000 house, you’ll need to save at least $25,000 for the down payment. However, if you’re buying in an area with high mortgage rates or you’re planning on staying in your home for a long time, you may need to save more.

Money needed for a $400,000 house

If you’re looking to buy a $400,000 house, you’ll need to save at least $40,000 for the down payment. However, if you’re buying in an area with high mortgage rates or you’re planning on staying in your home for a long time, you may need to save more.

Money needed for a $600,000 house

If you’re looking to buy a $600,000 house, you’ll need to save at least $60,000 for the down payment. However, if you’re buying in an area with high mortgage rates or you’re planning on staying in your home for a long time, you may need to save more.

Cash requirements are different for each buyer

Remember that how much cash you need to buy a house depends on your individual situation. If you’re buying in an area with high mortgage rates, you may need to save more for your down payment. Or, if you plan on staying in your home for a long time, you may be able to put down a smaller down payment and still build equity over time.

Additional Costs to Consider When Saving to Buy a Home

In addition to your down payment, there are other costs you’ll need to account for when saving to buy a house. These include:

Closing costs to save for when buying a home 

Closing costs are fees charged by your lender at the closing of your home loan. These fees can vary significantly depending on your lender, loan type, and location, but they typically range from 2% to 5% of the purchase price of your home. So, if you’re buying a $200,000 home, you can expect to pay between $4,000 and $10,000 in closing costs. These closing costs can include any or all of the following: 

  • Origination fees
  • Discount points
  • Appraisal fee
  • Home inspection
  • Credit report fee
  • Attorney’s fees
  • Title insurance
  • Transfer taxes

Pre-move-in remodels and repairs 

Once you’ve saved for your down payment and closing costs, you may also want to consider setting aside money for pre-move-in remodeling and repairs. Even if your new home doesn’t need any major work, there are always small projects that need to be done before you move in. These can include painting, carpeting, and minor repairs.

Decorating and new furniture 

In addition to pre-move-in repairs and remodeling, you may also want to set aside money for decorating your new home and buying new furniture. This is completely optional, but it’s something to consider if you want to make your new house feel like a home from the moment you move in.

Moving expenses 

Don’t forget to factor in moving expenses when saving to buy a house. These costs can include the cost of hiring a moving company, renting a truck, and packing supplies. If you’re on a tight budget, you may want to consider asking friends and family to help you with the move.

Property taxes 

Property taxes are what you’ll pay each year to your local or state government for owning your home. These taxes are usually based on the value of your home and can range from 0.2% to 2% of the purchase price. So, if you’re buying a $200,000 home, you can expect to pay between $400 and $4,000 in property taxes each year.

Home insurance

Homeowner’s insurance is an insurance policy that protects your home and belongings from damage or theft. It also provides liability coverage in case someone is injured while on your property. Most lenders require you to have homeowner’s insurance before they’ll approve your loan, so be sure to factor this cost into your savings plan.

Homeowners association fees 

If you’re buying a home in a planned community or condo, you may be required to pay homeowners association (HOA) fees. These fees go towards the upkeep of common areas and amenities, and they can range from $100 to $600 per month.

Utilities 

Utilities are the monthly costs of electricity, gas, water, trash, and sewer. These costs can vary significantly depending on the size of your home and the climate you live in. But, according to the U.S. Energy Information Administration, the average monthly utility bill for a three-bedroom home is $115.49.

Renovations and maintenance 

Once you move into your new home, there will always be small (and sometimes large) renovations and maintenance projects that need to be done. These can include painting, repairing gutters, and fixing leaks. Some of these projects you may be able to do yourself, but others will require the help of a professional.

Emergency fund 

Even if you’ve saved for all of the above costs, it’s always a good idea to have an emergency fund to cover unexpected expenses. Experts recommend saving 3-6 months of living expenses in an emergency fund. This may seem like a lot, but it will give you peace of mind knowing that you’re prepared for anything.

12 Financial Tips When Buying a House 

When you’re buying a house, it’s important to have a financial strategy in place. This will help you save for the down payment and closing costs, as well as any pre-move-in repairs or remodeling. It will also help you budget for the monthly costs of homeownership, such as property taxes, homeowners insurance, and utilities.

Here are a few financial tips to keep in mind when buying a house:

1. Examine where you currently stand on other financial goals

It’s always important to be aware of your financial standings. Before you start saving for a down payment on a house, make sure you’re on track to reach your other financial goals, such as retirement.

2. Know what you can really afford

One of the most important factors in deciding how much money to save before buying a house is how much house you can actually afford. Be realistic about how much house you can afford, and don’t overextend yourself financially.

3. Get an estimate 

Figure out just how much you can be expected to pay. Study the current real estate market, find out what houses are selling for in your desired area, and get a mortgage estimate. This will give you a good idea of how much money you need to save before buying a house.

4. The larger the down payment, the better

A larger down payment will mean a lower monthly mortgage payment and less interest paid over the life of the loan. So, if you can afford it, aim to save as much as possible for your down payment.

5. Know all the costs before you begin the process

As we’ve discussed, there are a lot of costs that come with buying a house. In addition to the down payment and closing costs, you’ll also need to budget for things like property taxes, home insurance, and utilities. Be sure to factor all of these costs into your savings plan.

6. Don’t forget to account for all the “little” costs of homeownership

There are also a lot of small, but important, costs that come with being a homeowner. These can include things like painting, repairing gutters, and fixing leaks. Be sure to factor these costs into your budget so you’re not caught off guard by them.

7. Reduce or cut out a bad financial habit 

If you have any bad financial habits, now is the time to cut them out. This can include things like credit card debt, smoking, or eating out too often. Reducing or eliminating these expenses will help you free up money to save for a down payment on a house.

8. Ask for a raise 

If you’re employed, one of the best ways to save more money is to ask for a raise. Even a small raise can make a big difference in how much money you have available to save for a down payment on a house.

9. Pick up a side hustle 

If you’re looking for ways to save more money, picking up a side hustle is a great option. There are a number of easy ways to make extra money, and this can go directly into your savings account.

10. Chop down on your debt 

If you have any high-interest debt, now is the time to focus on paying it off. The sooner you can get rid of this debt, the more money you’ll have available to save for a down payment on a house.

11. Rent out your spare room or parking space, if you have any 

Renting out a space in your home is a great way to bring in a little extra cash to put towards your mortgage. Maybe you’re really hoping to get your own space but can’t cover the cost of a mortgage on your own. Looking for a home that has a loft over the garage, extra rooms, or a walk-out basement can be a great way to plan for rentors who will help contribute to your mortgage payments! 

12. Automate your savings 

One of the best ways to save money is to automate your savings. This means setting up a direct deposit from your paycheck into your savings account. This way, you’ll never even see the money and you’ll be less tempted to spend it.

Buying a house is a big financial decision, and it’s important to be prepared before you begin the process. By following these tips, you can develop a sound financial strategy that will help you save for the down payment and closing costs, as well as the monthly costs of homeownership. With a little planning and preparation, you can be on your way to owning your dream home.

Use this guide as a starting point when developing your financial strategy for buying a house. And, if you need more help, be sure to check out our other informative articles and subscribe to our free email updates! 

About the Author Danielle Oloko

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