Buying a house is one of life’s most significant milestones for a lot of Americans and the largest purchase many will ever make.
It’s a well-known fact that most mortgages require at least some money down, but keep in mind that it isn’t the only thing you should save for. There are closing costs, property taxes, ongoing repairs, and maintenance as well.
That’s a lot to take on, so it makes sense to start saving up right after you’ve made the decision, for a few years before buying a house. Of course, that may seem like quite a long time, but no worries, we’ve prepared a few tips to shorten it.
How much money do you need to buy a house?
The amount of money required to buy a house varies widely from person to person.
For example, in purchasing a $250,000 property one may need less than $10,000 in cash upfront, while another buying a $600,000 house may need to save more than $100,000.
The amount you need to save is determined by the cost of the property, its location, and the type of mortgage you want to get.
The good news is that today’s mortgage programs have lowered the amount of money required to buy a house, making it easier for many homebuyers to qualify.
[su_note note_color=”#ffffff” text_color=”#000000″ radius=”0″]Interested in calculating your mortgage? [su_button url=”https://shekhtman-7052.supercalc.io/” target=”blank” style=”flat” background=”#0072ff” size=”4″ radius=”round” icon=”icon: calculator” “#ffffff”]Go to loan calculator[/su_button] [/su_note]
Homebuyers, especially first-timers, are frequently concerned about saving for a down payment, although it is not the only upfront cost when buying a house.
Remember that you should also budget 2-5% of the purchasing price for upfront fees, which include:
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- earnest money
- closing costs
- prepaid property taxes
- homeowners insurance
Overall, the total ‘cash to close’ is equivalent to the down payment + around 2% to 5% of the purchase price.
Keep in mind that there’s such thing as ‘cash reserves’- additional savings on top of the closing costs. Many homebuyers need them to qualify for a mortgage.
Why so? Lenders see this money as a safety net in the case of financial difficulties after the closing.
You’ll need at least two months’ worth of cash reserves, which is equivalent to two monthly mortgage payments (including principal interest, taxes, and insurance).
[su_note note_color=”#0072ff” text_color=”#ffffff”] FHA and VA mortgages usually do not require reserves.[/su_note]
Now, let’s calculate how much money you’ll need to buy, for example, a $400,00 house.
If you qualify for a conventional loan with a 3% down payment, the cash needed to buy a $400,000 property may start at around $27,000.
Homebuyers using the FHA mortgage program may face an upfront fee closer to $24,000 — but keep in mind that FHA loan limits in most places top out at $420,680. So, a $400,000 property may require a more significant down payment to keep your loan amount below the local limit.
How much should I save for a downpayment?
Do you think that you need a 20% down payment to purchase a house?
The truth is – not always.
Here at LBC Mortage, we have programs, such as the FHA loans mentioned above, which allow down payments as low as 3.5 percent. Or VA and USDA loans, which may require no down payment at all.
Depending on the loan, you may be required to pay mortgage insurance, but if it gets you into the house of your dreams sooner – think about it as a reasonable trade-off. Talk with a mortgage loan officer about the loans you could qualify for, how much house you can buy, and how much down payment you’ll need. That can help you figure out how much you need to save, and who knows, it may be less than you think!
5 best tips to save money for a house
Now, after you’ve learned how much money you’ll need to buy a house, let’s jump straight to the tips about the best ways how to save up for a house.
1. Create a savings account
Luckily, you no longer need personally go to a bank to open a savings account. Many banks now provide online savings accounts that users may open from anywhere, at any time. Aside from being handy, creating an online savings account may allow you to earn higher compound interest on your savings.
2. Automate your savings
Make sure to automate your savings account on a regular basis when you set it up. This way, a percentage of your income will be automatically deposited into your savings account before you are tempted to spend it elsewhere. Believe us, this tiny action will make a big impact on your savings and will help you resist the impulse to spend your money on unnecessary things.
3. Don’t spend your tax return or year-end bonus
Spending your tax return or year-end bonus on clothes or the latest smartphone while saving up for a property it’s not the best decision. Instead, as soon as possible, put it into your savings account. This is a simple strategy to increase your savings and shorten the time it takes to purchase a house.
4. Pay off your credit cards.
While setting aside money for a down payment is essential, paying off any existing debt is equally important.
What’s the reason for this? If you want to buy a house with credit, you’ll need a good credit score. Without it, you’ll have a difficult time finding a bank willing to lend you money for the purchase. Even if you find a mortgage lender, your interest rate will almost certainly be high.
Paying off your debt (especially on high-interest credit cards) and making minimum payments are the greatest ways to improve your credit score and get a reasonable interest rate.
5. Find a side hustle
Receiving extra money will help you to save more and fasten the process of saving for a house. Even if you already have a regular job, we suggest starting that side hustle you’ve been thinking about for a while.
There are many options, such as freelance writing, babysitting, dog walking, freelance photography, teaching, or even selling artwork. If you enjoy driving – you can apply for driving an Uber/Lyft as well. So, it’s time to dust off that old résumé!
More short methods for saving for a house
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- Ask for a raise.
- Instead of buying books, get a library card.
- Use of coupons.
- Use of money-saving apps.
- Cancel unnecessary subscriptions
– Is now a good time to buy a house?
Many people try to right-time the purchase of a house or an investment property. They want the lowest rates, the lowest prices, and, ideally, an all-out buyer’s market. But unfortunately, those conditions rarely converge.
And if you’re waiting for the picture-perfect moment – you might end up waiting forever.
After all, it’s not about finding the ultimate, ideal moment to buy the house, but it’s about settling on the right time to buy for you specifically.
And when are you going to be ready? The sooner you can do it, the better.
If you have your finances, credit, downpayment, and assets in order, then yes, it is a great time to purchase in 2022 and even in 2023.
– What is a down payment?
A down payment is an amount of money paid by a buyer at the beginning of the process of purchasing expensive goods or services. The down payment is a percentage of the total purchase price, and the buyer will often take out a loan to fund the remaining.
– How much should I save before buying a house?
When saving for a home purchase, it’s essential to have a cash reserve that isn’t used for the down payment or closing costs (20% of the purchase price for a down payment and 5% for closing costs). It’s good to have at least 3-6 months’ worth of living costs in your cash reserve.
Think that smaller expenses such as moving costs, new home furnishings, and a starter home maintenance fund can soon add up.
It would be best to create a budget for minor expenses and add it to the amount you expect to need for a down payment.
– Can I save money for a house while renting?
But of course! Finding a roommate is one of the simplest ways to cut your rent in half and save a great deal of money. Imagine half the rent and half the utility bills. This adds up to significant savings that you may put toward your down payment.
It will take some time to save for a down payment. However, if you act quickly enough, the process may not take as long as you think. If you follow the tips mentioned above, you’ll be on your way to becoming a homeowner sooner rather than later.