How Much Savings Do I Need to Buy a Home?
If you’re considering buying a home soon, whether it will be your first home or the first home you’ve bought in a while, you may find yourself wondering how much you need to have saved up to buy a home. The home buying market moves quickly, these days more than ever, so it’s critical to have everything in order when the time comes to place an offer on your ideal home. Figuring out how much savings you need to have set aside is a crucial step in the home buying process, as it allows you to plan out your home buying budget and make sure you’re able to cover all of the associated costs of buying a home.
In order to take out a mortgage loan to finance your home purchase, you need to put some money down on the home first. The standard recommendation for a down payment is 20% of the home’s purchase price. However, there are specialized mortgage loans that only require as little as 3% down. Talk with your mortgage lender to determine which mortgage loans you are eligible for and their down payment requirements. There are benefits to saving up for a larger down payment, even if you qualify for a lower amount. The more you are able to put down, the less you have to take out for the loan. A lower loan amount also means lower monthly payments, which leaves you with more room in your monthly budget.
An appraisal is a professional assessment of the value of your home. Your lender will need to know how much the home is worth before approving your home loan. If the value of the home is less than the loan amount requested, the loan may not be approved for that amount. Since appraisals are required, the lender usually schedules this appointment for the buyer. On average, home appraisal fees are around $500. The buyer typically pays the appraisal fee, however there are some mortgage loan types where the appraisal fee is covered by the lender.
A home inspection may not be required for the purchase of your home, but many home buyers still prefer to complete this step. Having the home professionally inspected allows you to know exactly what you’re getting into, which is important when making such a large purchase. Arranging to have the home inspected gives you the opportunity to be made aware of any potential issues with the home before the purchase is complete. The buyer typically arranges and pays for home inspection, but your mortgage lender may be able to recommend a few preferred inspectors for you to choose from. During the inspection, the home inspector will complete a report detailing any problems with the home. You will receive a copy of the inspector’s report, and can choose whether to purchase the home as-is, or request that the seller complete certain repairs before you purchase. Potential buyers may also back out of the sale at this point if they are not satisfied with the inspection results and if they have a contingency in their purchase agreement. On average, home inspections typically cost $300-$500, so be sure to build that amount into your home buying budget.
Closing on your mortgage loan is the final step in the home buying process. During closing, ownership of the home is transferred from the seller to the buyer (you!). On your closing date, you will finalize and sign all of the loan documents and other needed paperwork. You will also pay the fees associated with this process, known as closing costs, which include taxes, title insurance, home appraisal fees, attorney fees, etc. Closing costs are typically around 1-3% of the home’s purchase price, depending on the loan type. There are loan types and programs that cover some of the closing costs or offer reduced closing costs, so check with your mortgage lender to see what options are available to you.
Even once you have money saved up to cover your down payment, closing costs, and inspection and appraisal fees, there are still additional costs that may come up and you want to make sure you have enough savings to cover them. Think of expenses like moving costs for example, if you need to rent a moving truck or pay for professional movers. Other costs to consider include any needed repairs or renovations, along with furniture and other décor for your new place.
Give Your Savings a Home
Now that you know how much you need to have saved up for your home purchase, you can set your savings up for success. We recommend having a separate savings account for your home buying savings. This way you won’t be tempted to use those savings in the event of needed car repairs or any other purchases. Giving your home savings a home of their own in a separate savings account ensures that your savings will continue to grow and will be there when you need it. We offer a variety of savings and certificate accounts to help you save up to buy your dream home.
If you’re ready to apply for a mortgage loan, let our team help you get the loan you need. Visit our Mortgage Loan Center to learn more about the mortgage process, use our Home Buying Calculators to get a picture of what your home loan will look like, and check out our Buying a Home video series on YouTube for more information about home buying. Apply for a mortgage loan online or set up an appointment to speak with one of our Mortgage Loan Officers.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.