Find out what costs you might incur. Knowing how much money you'll need to save to buy a house can be difficult. You can buy a home for a few thousand dollars in some cases, but you may need much more in others. Learn more about setting a target amount for your home savings strategy.
Important Points to Remember
- Aim to save 20% of the home's purchase price for a down payment and 5% for closing costs.
- Smaller costs, such as moving fees, new home furnishings, and a starter home maintenance fund, can add up quickly when purchasing a home.
- You can make a budget for smaller expenses and add it to the amount you'll need for a down payment.
The Average Cost of Purchasing a House
Because there are numerous factors that go into the total cost, the cost of purchasing a home will vary from person to person. Here, we'll go over some of the most common home-buying costs and their average costs. You can use this data to make a personalized estimate for yourself.Making a Down Payment
Your down payment will most likely be the most expensive part of the home-buying process. Many buyers aim to save at least 20% of the purchase price of their dream home. This is because, with a conventional mortgage, the most common type of mortgage, you must put down this much to avoid private mortgage insurance (PMI). For example, in Q3 2021, the median sales price for a home was $404,700, which means a 20% down payment would require $80,940 in savings. On the other hand, many government-backed mortgages call for a much lower down payment. For first-time buyers, FHA loans require as little as 3.5 percent down. For those who qualify, VA loans may not require any money down. Tip: If at all possible, make a 20% or higher down payment on any loan to avoid paying PMI and reduce the amount you need to borrow.Costs of Closing
Closing costs are another high cost to consider when calculating the cost of a home. Fees for title insurance, home inspection, and appraisal, as well as fees for setting up an escrow account, property taxes, insurance, and mortgage origination, are among the prepaid expenses. Closing costs typically range between 2% and 5% of the home's purchase price. So, if you budgeted 5% for closing costs on a $404,700 home, you'd need to save an additional $20,235. Some of these expenses may be rolled into your mortgage. However, if you pay them in full upfront, you won't need to borrow as much. Your lender should also provide you with a loan estimate that includes all of the closing costs and which ones you can save money on by shopping around for.Moving Costs
Whether you handle the move yourself or hire professional movers, you'll almost certainly need to set aside some funds for it. You can save money by doing it yourself, but you'll need a vehicle, a lot of extra boxes, and the time and strength to move your belongings. The cost of your move will depend on how much you want to buy and how far you're moving. According to Pods, a popular moving company, a full-service move (including transportation and loading/unloading) from New York City to San Francisco costs between $1,500 and $1,800.Remodeling and Repairs Prior to Moving In
Before you move in, you'll probably want to do some work on your house, such as installing a new lock on the door or repainting and installing new flooring. Until you choose a home, you won't know how much you'll have to pay for remodeling or repairs. However, you can set aside some money for this project in your savings account.New Furniture and Decorating
It takes years and a lot of money to furnish and decorate a home. However, you might want to start decorating or shopping for new furniture immediately. If your new home lacks certain appliances, such as a refrigerator or washer and dryer, you may need to purchase them. Tip: The cost of decorating and furniture will vary depending on your preferences and requirements. This is another expense that you can deduct from your down payment fund if necessary, but keep in mind that it will increase the amount of money you need to borrow.Fees for Leaving
If you're currently renting, you may be charged fees such as lease breakage (early termination) fees or cleaning fees when you move out. If you already own a home, there will be costs associated with selling it, such as a real estate commission.Home Repair Fund for Beginners
Consider setting up a separate home repair fund so you can pay for unexpected repairs without going into debt or deviating from your budget. The fund can be used to cover costs such as replacing a water heater or furnace and repairing a faulty refrigerator. Most experts recommend allocating 1% of your home's value to home maintenance each year. That works out to $4,047 per year or $337.25 per month for a $404,700 home.What is the minimum amount of money required to purchase a home?
When purchasing a new home, the down payment and closing costs will likely be your largest outlay. Fortunately, because you can estimate average expenses in advance, those two expenses are often simple to budget for. You can calculate a target amount to save if you know what kind of home you want to buy, where you want to live, and what kind of mortgage you'll use. Other expenses, such as moving expenses, home furnishings, and moving costs, are more difficult to estimate ahead of time. You might want to put aside some money for these costs in your budget.Most Commonly Asked Questions (FAQs)
How much money do you require to purchase a home?
You'll need enough money to cover the down payment and closing costs at the very least. The ability to purchase a home is made easier by having a high credit score, but it is occasionally possible to be approved with less-than-perfect credit. Different types of mortgages have different down payments, closing costs, and credit score requirements.When you purchase a home, how much do you get back in taxes?
Purchasing a home may provide tax advantages. If you itemize your deductions, you can deduct the interest you pay on your mortgage (up to $750,000 in debt). If you're a low-income homeowner, you might be eligible for a Mortgage Tax Credit Certificate, which allows you to deduct your mortgage interest from your taxes.When it comes to buying a home, what questions should you ask?
Consider whether the house is within your budget. Take into account ongoing costs like your mortgage payment, home maintenance, and utilities as well as one-time expenses like a down payment. How old the home is, whether it's in a flood plain, and whether it belongs to a homeowner's association are additional crucial inquiries to make (HOA).