Blog Misc How Much Money Should I Save Before Buying a House?

How Much Money Should I Save Before Buying a House?

date November 17, 2021 time 5 min read 2763 views

Becoming a homeowner is a big financial decision buying a house comes with a lot of hidden expenses. That’s why many people wonder “How much money should I save before buying a house?”. If you’re asking this question yourself, let’s dive in.

Buying a house is one of the biggest decisions that requires far more than a simple down payment. Determining “Which are prepaid costs when buying a home?” depends on many factors such as the value of the home you want, how much you can push into your down payment. In this article, we will show you what are the requirements to buy a house.

“What are the requirements to buy a house?” is one of the top questions for those making a financial plan.
“What are the requirements to buy a house?” is one of the top questions for those making a financial plan. (Source: Pixabay)

How much to save before buying a house?

The first thing to answer the question “How much money should I save before buying a house?” is to figure out where and how you want to live. Your house price depends on the place you live, so determine specific locations you have your eye on. 

Based on your current income, expenses, and future goals, figure out how much you need to put away. Talk to your family about the sorts of things you are willing to sacrifice for a new house like entertainment spending or a vacation. You can achieve your goals if you save 100 dollars a week for a year. In addition to your own money, you can research the different types of loans, then decide the most appropriate one.

Your enneagram core motivations and enneagram types core motivations might affect how you treat money and the way you manage your finances. When you think “Which are prepaid costs when buying a home?”, your down payment is not the only upfront cost.

Ultimately, you need to cover six factors: the down payment, closing costs, moving expenses, repairs and maintenance, the first few months’ mortgage payments and your emergency fund.

Home buyers often focus on saving for a down payment, but sometimes it’s not enough. If so, then it's time to get creative.
Home buyers often focus on saving for a down payment, but sometimes it’s not enough. If so, then it’s time to get creative. (Source: Pixabay)

1. Down payment

Down payment is the first thing you need to estimate when considering “Which are prepaid costs when buying a home?”. Depending on your credit score, mortgage interest rate and current financial health, the down payment on a home can range from 3.5 percent to 20 percent of the total cost. Many private funding groups and lending institutions offer various options, some of which only require about 3 percent down.

Many mortgage companies often recommend you put at least 20 percent down on a house. This can help you avoid a monthly private mortgage insurance fee (PMI) that protects your lender from losing money in case you can’t make your mortgage payments. “You’re going to be lowering your monthly payment in the future, and you also have a buffer,” “If housing prices decrease and you need to sell your home, you’re not going to be as much underwater if you have more of that equity in the home upfront.”, Cathy Derus, CPA and founder of Brightwater Financial said.

Putting a down payment for a home is an important milestone for many of us.
Putting a down payment for a home is an important milestone for many of us. (Source: Pixabay)

Any down payment amount on a house less than 10% is too low. Remember that with government-insured programs, you have to pay so much extra in interest and fees that you’ll sink your overall financial plan.

Hence, save up at least 20% of its sale price in cash to cover all of the different buying expenses. So if you buy a home for $300,000, you need to come up with more than $60,000 to cover all of the different buying expenses.

2. Closing costs

Closing costs refer to fees for services that help to officially close the deal on a house. They usually include inspection fees, property taxes and prepaid interest, and buyers will typically pay between two and five percent of the home purchase price.

Inspection fees usually cost about $300-400 that are paid before closing day. Before you decide to buy a house, a pro will examine your potential home from top to bottom to warn you of any issues or damage. Get ready to pay at least twice as much for the home appraisal, which is your lender’s way of ensuring that the house is worth the amount of money they’re lending you.

3. Moving expenses

When it comes to “What are the requirements to buy a house?”, do not skip moving expenses. In addition to your stuff, some expenses may crop up like new furniture to fill a larger space or decorate your house. If you can’t get help from friends to transport all your stuff, set room in your budget to pay for your move. Renting a moving truck or hiring a moving company for a local move costs range from $650-1,800.

To visualize “Which are prepaid costs when buying a home?”, here’s an example: 

Home Price: $300,000Buyer’s CostPercentage of Home Price
Down payment$60,00020%
Closing costs$15,0005%
Moving expenses$3,0001%
Total buying costs$78,00026%

4. Cash reserves

Researching the different types of loans is one of the best ways to accelerate your home-buying timeline. So, take time to ask what the rate and closing costs are and obtain a preapproval where the lender verifies income and credit.

In addition to these costs, if you are searching “What are the requirements to buy a house?” on the Internet, cash reserves are at the top of answers. Cash reserves refer to the amount of money that many lenders require to make sure you will be able to afford your new monthly mortgage payments. 

Not everyone needs cash reserves, but they can help prevent you from defaulting on your mortgage payments. Furthermore, in the first few months after purchase, it is not comfortable to keep up with your mortgage. Hence, when saving up for a house, set an emergency for at least three to six months’ worth of living expenses.

When asking “What are the requirements to buy a house?”, don’t skip cash reserves.
When asking “What are the requirements to buy a house?”, don’t skip cash reserves. (Source: Pixabay)

After getting the details from a lender, you also need to determine the monthly payment. A free online mortgage calculator can help you estimate these costs. 

Now you know which are prepaid costs when buying a home if you’re buying a house with a mortgage. All you need is to follow your plan and earn enough money. You may wish that you knew how to turn $1,000 into $5,000 in a month. One of the most common ways to save up for a new house is starting investing. This can answer the question “How much money should I save before buying a house?” easier rather than only depending on your salary.

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