Since buying a house can come with a lot of hidden expenses, here is the answer to one of the most asked questions when it comes to buying proprieties: How much money do you need to save up to buy a house?
A smart way to start is considering getting a mortgage. In this case, you’ll need to save up at least 25% of the house’s sales price just to cover a down payment. This also helps you to cover the closing costs and moving fees.
The percentage are more or less like this: 20% for down payment, 4% for closing costs and 1% for moving expenses. Does it sound too high? It is because it’s the ideal quantity.
Nowadays, most buyers can only save up around 15% and the number one reason is because of student loans, followed by credit card debt and car loans. So, what you got to do is customize your budget to buy a house.
House-Buying Budget
First of all, you have to try and get rid of your debt or at least as much as you can. Second, you need to have an emergency fund. And the next thing you need to do is do the math to come up with a house-buying budget.
Down Payment
The recommend amount is saving at least 20% of the total house price to avoid paying PMI. Any down payment that is less than 10% is too low. Why? Because in the long run, you’ll end up paying much more money in interest and fees.
Closing Costs
Closing costs are typically around 4% of the home’s sales price. This refers to fees that help to officially close the deal. It includes a home inspection and other loan-related fees like paperwork fees, prepaid insurances and taxes.
To break it down a little bit more:
- Home inspection: is when an expert examines a potential home from top to bottom. The objective is to warn you of any issues or maybe damages that that home has, before you buy it. It usually costs about $300–400.
- Home appraisal: this determines the home’s value. It is a way for your lender’s to make sure the home is worth the amount of money they are loaning you.
- Title fees, taxes and loan origination fees: these are more difficult to calculate because they vary based on where you are buying a house. These can each cost at least 1% of your home’s sales price.
Moving Expenses
Unless you get all the help necessary from your friends and family, plus enough pickup trucks, you will probably need to save up some money for moving expenses.
So, these kind of expenses cover from renting moving trucks to hiring a moving company, and are usually around $650 and 1,800, in case it is a local move.
Buying a house in cash. Is it okay?
Now you know how much money you need to save up to buy a house with the help of a mortgage. But what if you can pay the whole home’s sales price with cash? Yes, all of it. Then you’ll have some benefits:
- For instance, you will be more attractive to sellers. Since you can pay everything in that very moment, sellers will likely choose you over the competition.
- Therefore, you will enjoy a faster home-buying experience.
- You will be cutting out the length of loan-approval processes.
- You will also avoid decades worth of interest fees.
- You will skip extra loan-related fees.
- And, of course, you will have no mortgage payments.
So, the answer to: is it okay to buy a house in cash? Is yes! And it is totally worth it if you can buy your home without touching your emergency fund or sacrificing other financial goals.
Do you want to know where to bicycle a house? Check out this article on how to choose the best neighborhood.
