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How Much Do I Need Saved to Buy a House?

How much money do you need upfront to buy a house? Learn how much you have to save for a down payment, closing costs, and more.

Rebecca Safier • May 31, 2022

The housing market is more competitive than ever. Homes fly off the market in a matter of hours, often selling for far higher than the listing price. Dozens of potential buyers jostle one another at open houses. 

If you want to get in on the action, you need to be ready to act fast. That’s why it’s important to understand all your costs upfront before you put in an offer. As you’re saving up, don’t just focus on your down payment – additional fees like closing costs will add to your bill. 

Are you saving up to buy a house? We’ve got you covered so that you don’t run into any surprises!

In This Article

  1. How Much Do I Need for a Down Payment on a House?
  2. What Are Closing Costs?
  3. How Much Cash Do I Need to Buy a House?
  4. How Much Should I Budget to Spend Every Month?
  5. How Do I Save Up to Buy a House?
  6. Bottom Line: Make a Plan

How Much Do I Need for a Down Payment on a House?

That depends. Traditionally, experts recommend putting down 20% of the home’s purchase price upfront. If you have a 20% down payment, you won’t have to pay private mortgage insurance (PMI) every month, according to the Consumer Financial Protection Bureau (CFPB). 

But saving up a 20% down payment is a tall order, especially in today’s competitive housing market. Luckily, you can get a mortgage with a lower down payment. As reported by U.S. News, some conventional lenders will accept a down payment of as little as 3%.

According to the National Association of Realtors, 20% is not the average down payment. Surprisingly, the median down payment for homebuyers in 2022 is 13%. So if you can’t afford a 20% down payment, don’t worry — you may still be able to buy a home. 

Some loan programs will accept even lower down payments if you qualify. The Department of Veterans Affairs, for instance, offers VA loans to current and former service members with 0% down. The U.S. Department of Agriculture also provides 0% down payment USDA loans, and some FHA loans only require 3.5% down. 

So, how much do you need to save for a down payment? The TL;DR version is this: You may be able to put down as little as 3% for a conventional home loan, but paying less than 20% will mean you probably need to pay monthly PMI fees.

What Are Closing Costs?

Your house down payment isn’t the only upfront expense when buying a home. You’ll also need to pay closing costs if you borrow a mortgage. 

Closing costs are the fees that come with borrowing a mortgage and buying a home. Depending on where you live, they typically cost anywhere from 2% to 7% of your loan amount. 

For example, if you’re borrowing a home loan for $300,000, expect to pay somewhere between $6,000 and $21,000 upfront in closing costs

Here are some of the most common closing costs you’ll encounter as a buyer. 

Origination Fee 

Many lenders charge a fee to originate the mortgage. According to Rocket Mortgage’s overview of closing costs, origination fees may cost around 1% of your home loan amount. If you’re borrowing $300,000, you might pay a $3,000 origination fee

Prepaid Interest 

You might also need to cover the interest charges that add up on your home loan between the date you close and the date you make your first mortgage payment. If you borrowed $300,000 at a 5% interest rate, your first month of interest charges could cost around $1,250

Private Mortgage Insurance (PMI)

As we mentioned, you’ll probably be charged PMI if your down payment is less than 20%. Expect to pay between $30 and $70 extra per month for every $100,000 you borrow. Some lenders ask you to put down a month’s worth of PMI charges upfront. On a $300,000 loan, you might need to bring $90 to $210 to closing to cover this fee. 

Appraisal Fee

Before a lender can give you a home loan, they need to assess the home’s value. This process is known as an appraisal. Appraisal fees typically cost between $300 and $600 and will be included in your closing costs. 

Title Search Fee 

You might also have to pay $200 to $400 to cover a title search fee. Basically, the law says a home needs a clean title (as in, no bankruptcies or unpaid back taxes) to make the home sale legit. 

Homeowners Insurance

Homeowners insurance is a must if you’re getting a mortgage. Not only do lenders require it, but it will protect you if your new house gets damaged. 

You might have to pay a year’s worth of homeowners insurance at closing. If your home is worth $300,000 and your homeowners insurance costs $105 per month, you’d need to pay $1,260 upfront

Property Taxes 

Property taxes are another prepaid expense to expect. You might need to cover up to a year’s worth of property taxes at closing. This cost will vary depending on where you live, the value of your home, and the time of year you close. 

According to WalletHub’s 2022 analysis of U.S. Census Bureau data, the average property taxes are $2,471 each year

Attorney Fees 

Depending on your state, you might need an attorney’s help to buy your home, according to a report by The Legal Description. If you need one, your attorney may come to closing.

Cash Reserves 

This isn’t a closing cost, but it’s worth noting. Some lenders want to see that you haven’t emptied your bank account to buy a home. They might look at your bank account or other assets to make sure you have enough on hand to cover a few months of mortgage payments

So, along with saving for your down payment and closing costs, you might need some money left in the bank to reassure a lender that you can make your mortgage payments. This requirement is more common for borrowers who are self-employed or have a lower credit score. 

How Much Cash Do I Need to Buy a House?

Given all these expenses, how much do you need saved to buy a house? Is $20k enough to buy a house, or do you need to save more? That depends on how much of a down payment you want to put down. 

Let’s say you’re purchasing a home for $300,000. This chart estimates how much cash you’d need to buy a house at different down payment amounts. 

Down Payment %Down Payment Amount Home Loan AmountEstimated Closing Costs (2% to 7%)Total Cash You Need to Buy the House 
3%$9,000$291,000$5,820 – $20,370$14,820 – $29,370
5%$15,000$285,000$5,700 – $19,950$20,700 – $34,950
10%$30,000$270,000$5,400 – $18,900$35,400 – $48,900
15%$45,000$255,000$5,100 – $17,850$50,100 – $62,850
20%$60,000$240,000$4,800 – $16,800$64,800 – $76,800

 

To calculate your own costs, first use a mortgage calculator to figure out how much you can afford to pay for a home. Once you have a sense of your down payment and mortgage amount, you can estimate your closing costs to determine how much you need to buy a house. 

How Much Should I Budget to Spend Every Month?

Saving up for a house down payment and closing costs is probably the biggest hurdle home buyers face. But you also need to make sure you can afford your monthly costs as a homeowner

By estimating these costs upfront, you can start budgeting for them. First and foremost, you’ll pay off your mortgage each month. Your lender will disclose your monthly payment and other loan details at least three days before you close, according to the CFPB. 

Many lenders roll your property taxes and homeowners insurance into your monthly loan amount, so you won’t have to worry about paying them separately. In this case, your lender will usually put a portion of your monthly payment into an escrow account and pay these bills for you. 

Make sure to read over the terms of your mortgage to see whether or not your monthly payments include these expenses. If you belong to a homeowner’s association, you may have to pay monthly HOA fees separately. 

According to iPropertyManagement, the average monthly HOA bill for a single-family home is $250. Finally, try your best to save an emergency fund for unexpected expenses. As a homeowner, you’ll need to cover the costs of utilities, repairs, and renovations.

How Do I Save Up to Buy a House?

Saving up to buy a house is no easy feat, but there are steps you can take to reach your goals. Here are some ideas to help you go further faster. 

1. Automate It 

Saving money can be hard, but automating the process makes it easier. To get started, figure out how much you need to save every month to meet your goal. 

Open a separate savings account and set up automatic transfers from your main checking account. You can pick the interval, whether you want to save money weekly or monthly. 

You don’t have to think about saving after setting up automatic transfers — your accounts will do it for you. Plus, you’ll get that money out of your checking account before you can spend it. 

Before you set this up, though, make sure you can afford it. Overdrawing on your account can lead to overdraft fees, which can set you back as you’re saving for a house. 

2. Overhaul Your Budget 

It’s hard to save if you don’t know where your money is going each month. Take some time to design a budget to get a bird’s-eye view of your income and expenses. 

Take a look at how much you’re making and spending each month. Write down your major expenses categories, like rent and car payments and miscellaneous expenses. 

You can do this with a simple spreadsheet or use a handy budget-tracking app to do the heavy lifting. 

Once you get a sense of your spending patterns, look for areas where you can cut back. If you get takeout all the time, consider cooking at home to save money. 

If you can squeeze extra savings out of your budget, you can throw that cash directly into your home savings account.

3. Consider Downsizing 

Despite what some personal finance experts would have you believe, cutting out lattes and avocado toast will only get you so far. You’ll probably see greater savings if you can cut down on your major expense categories like rent and car payments. 

If you’re paying a lot in rent, consider getting a roommate or two. Or, if your car payment is breaking the bank, think about trading in your vehicle for a cheaper model. 

While you might have to make some temporary sacrifices, embracing a minimalist lifestyle could help you save for a home faster. 

4. Boost Your Income 

Budgeting and saving money are only one side of the coin when meeting a savings goal. The other side is increasing your income. 

Maybe you can ask for a raise at your current employer. Or, if you’re open to changing jobs, perhaps you can earn a certification that could lead to a position with a higher paycheck. Don’t forget to negotiate salary before accepting an employment offer. 

You could also consider working a side hustle to make more money. For instance, you could offer freelance services online, such as writing, photography, social media management, or web design. 

You could also join the gig economy by driving for a ride-sharing service like Uber, shopping for Instacart, or offering services through TaskRabbit. If you have an extra room in your apartment, consider renting it out on Airbnb. 

If you have a car, you could even get paid to wrap it in ads and drive around town through a company like Wrapify. You have many avenues to pursue your entrepreneurial side and speed up your home-buying timeline. 

5. Pay Down Debt 

When you’re saving to buy a home, paying down debt might not be your top priority. But having multiple loans can hurt your chances of getting a mortgage. 

Mortgage lenders look at your debt-to-income (DTI) ratio when you apply for a home loan, according to the CFPB. If you owe a lot of debt in proportion to your income, a lender might reject your application for a loan or only lend you a small amount. A high DTI could also mean you don’t get the best interest rates. 

You can lower your DTI ratio and become a better candidate for a mortgage by paying off debt now, especially high-interest debt. 

Bottom Line: Make a Plan

Buying a home is an exciting milestone, but saving for a down payment and closing costs can feel overwhelming. Fortunately, you can hit your savings goals if you have a solid plan. 

To start, use a mortgage calculator to figure out how much home you can afford. Compare your monthly costs at different down payment amounts. 

Decide on a reasonable down payment amount for you (it doesn’t have to be 20%), and remember to estimate closing costs and cash reserves, too. 

Once you have your target in mind, think about what steps you need to take to achieve it. Cutting back expenses and boosting your income can help you hit your savings goal. 

Along the way, take advantage of budget-tracking apps and automated savings. With these tools, you can “set it and forget it” and watch your savings grow. 

Want to make your money grow even faster as you save for a home? Take advantage of the Automatic Savings features of our High Yield Chime Savings Account.

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