A house is one of life's biggest expenses, and the idea of saving up for one can be daunting. Figuring out how much to save in the first place can be a challenge too. In addition to a monthly mortgage payment, closing on a home requires buyers to bring a significant amount of funding to the table.
Our REALTORS® work closely with first-time homebuyers to help them prepare for all the various expenses associated with homeownership. Below, we'll discuss how to save for your future home as well as the various costs you can expect to pay at closing.
How To Save For A House
The process of saving for a home likely needs to begin long before you're actually ready to purchase one. Here are a few tips to help you along the way:
- Set Your Goal
Before you can determine how much you need to save, you'll need to decide on the type of home you'd like to buy and determine a price range. How much room do you need now and expect to need in the future? Is your goal to buy a small starter home, a large move-in ready property, or one of these beautiful Bronxville homes for sale?
Once you've determined what you're going to buy, you can work with a lender or a mortgage broker to estimate the cash you need to close (read more on that below!). Subtract what you've already saved and divide the difference by the number of months between now and your target purchase date. That's what you'll need to spend per month.
- Manage Your Budget
Now that you know how much you'll need to save, you might need to make some adjustments to your budget. Start by totaling all your monthly expenses and subtracting the total from your monthly income. Then you can see how close or far you are from your savings goal. Close the gap by eliminating the things you can live without (streaming services, subscription boxes, eating out).
- Find Supplemental Income
If you're still far behind your savings goal, you might consider ways to generate supplemental income. With today's gig economy, there are dozens of easy ways to make some extra cash. You can be ride share driver, start an online business, find freelance work online, or even rent your car. The opportunities are endless!
- Temporarily Reduce 401K Contributions
Saving early for retirement is incredibly important; however, temporarily reducing your 401K contributions can help you save for a home. While some may hesitate to reduce contributions, it's important to remember that your home is an investment too. Home values appreciate over time, so depending on the market conditions, these dollars could land you even a higher ROI when you invest them in real estate.
How Much You Need To Save For A House
There are many costs associated with closing on a home. Below is a quick summary of the three main groups of expenses required at closing:
- Down Payment
Putting down 20% allows you to avoid paying private mortgage insurance (PMI), but you can also secure financing with 10%, 5%, or possibly even 3.5% down.
- Closing Costs
Closing costs include nearly a dozen fees and expenses, including mortgage origination fees, notary fees, tax stamps, and many others. Closing costs can be anywhere from 7% to 12% of the home price on average.
- Prepaid Expenses
Depending on your location and lender, you may be required to "prepay" 6 to 12 months' worth of certain expenses into an escrow account, such as a homeowner's insurance premium or property taxes.
Saving for a house isn't easy, but it's one of the best investments you can make. For more tips on how to purchase your first home, contact us.