Purchasing a home is likely the biggest investment you will ever make. It can seem insurmountable if you aren’t sure how much money you really need to set aside. The good news is mortgages have become much more attainable and, in many instances, home ownership can be more affordable than renting. So how much money do you need to buy a home? Read on to find out what you can expect.
One of the biggest mortgage myths is that you need to save 20% for a down payment. This would be a big obstacle for many first time homebuyers and, thankfully, this is no longer true. There are several mortgage options that require as little as 3.5%, and some that even have 0% down payment options depending on your qualifications.
To figure out how much you need to save for a down payment, speak with one of our mortgage professionals about what loans you can get approved for. Use a mortgage calculator to determine what sales price you can afford based on how much you want your monthly mortgage payment to be. Multiply that sales price by the percentage you need to save for your specific mortgage loan. For example, a 5% down payment on a $400,000 house is $20,000.
Closing costs are one of the most overlooked expenses when it comes to buying a home, and there are several that accompany purchasing a home. Closings costs generally amount to anywhere between 2%-4% of the purchase price of the home, so it can add up to a significant amount. Some buyers try to negotiate closing costs into their sales contract by asking sellers to cover a certain percentage. This is possible to do, but if you find yourself in a bidding war, it is unlikely that sellers would agree to pay a significant portion of your closing costs.
Closing costs include:
Most closing costs are paid at the time of closing, however some are paid once you go under contract on the home. You can expect to pay the credit report fee at the time you submit your mortgage application, and the inspection and appraisal fees are collected at the time they are completed. The credit report fee is low, usually about $20-$40 per applicant. Appraisals generally run between $500-$800 depending on your area, and inspection fees are a few hundred dollars as well.
The bulk of your home purchase costs have come out of your pocket at this point, and technically, you aren’t required to spend any more money. However, you need to get relocated into your new home. Whether you rent a Uhaul and recruit friends to help you move, or you hire movers to handle it all, there are some additional costs you’ll need to account for. Also, consider other extra expenses you will accrue as you begin to furnish and decorate your house including any appliances you may need to purchase.
Having a clear understanding of how much money you need to save to purchase a home is the first concrete step you’ll take toward homeownership. Once you have a number you are working toward, you can make attainable goals and plans toward saving the necessary money. Armed with knowledge and determination, you’ll find yourself getting closer to buying a home you’ll love for years.