Man talking on phone at desk

How much money should you save before buying a home?

Before browsing online listings, creating a budget for homebuying expenses is an excellent way to determine how much you should save for a home purchase.

6 expenses new homeowners should consider

The number you get from the pre-approval process only tells you the maximum payment amount you can expect to borrow from your lender. To understand better how that translates to potential homes you can afford, it’s helpful to consider what else goes into buying a home. Be better prepared for homeownership by reviewing these six common expenses.

  • 1. Down payment

    A down payment is a portion of your home purchase price paid upfront. When you take out a mortgage, you’ll typically pay your down payment on closing day, with the remaining cost of the home paid in monthly installments.

    The amount of your down payment will vary depending on your home’s appraisal price, the type of loan and your credit history. The old rule of thumb that you need to put down a minimum of 20% is a myth. The fact is, with affordable lending programs, there are several low or no down payment options available. However, while lenders set the minimum down payment requirements, you can always pay more. Pros of a larger down payment may include a lower monthly payment and a better interest rate.

    Down payment assistance programs

    Down payment assistance programs open the door to affordable homeownership. They offer relief from the costs of purchasing a home for buyers who can afford monthly mortgage payments but don’t have enough money for a down payment. Eligibility is most commonly based on income, with assistance provided in the form of a loan or grant that’s sometimes forgiven over time.

  • 2. Closing costs

    Closing costs are expenses related to obtaining a mortgage and closing a home purchase. Defining how to calculate closing costs can be tricky because they vary based on the state or county in which you’re buying a home, as well as the type of mortgage. While the actual expenses aren’t the same for all home purchases, there are some standard recurring payments and one-time fees you can expect to pay.

    • Ongoing costs such as property taxes and homeowner’s insurance
    • One-time expenses such as an origination fee or discount points, processing fees, underwriting fees, appraisal fees, settlement agent fees, title fees and recording fees

    Having an estimate upfront will give you more time to save and have the funds available. With the Guild cash-to-close calculator, when you tell us about the home you’re interested in, we’ll let you know approximately how much money you should save to close your real estate purchase.

  • 3. Prepaid expenses

    An escrow account is a way to prepay the costs associated with owning a home. A portion of your anticipated property tax bill and hazard insurance premium is added to your monthly mortgage payment so that when each becomes due, your loan servicer will have funds in your account to pay them for you. In addition, if flood insurance or private mortgage insurance (PMI) is required, these fees will be included in your monthly payment.

    Rather than worrying about paying an annual tax and insurance bill all at once, you’ll spread those costs into monthly installments. To determine what your monthly escrow payments will be, add one-twelfth of the annual taxes and insurance premiums to your monthly loan principal and interest payment. The principal is the original amount you borrowed, and interest is what you’re being charged for borrowing the principal.

  • 4. HOA fees

    When purchasing a home in a community with a homeowners association, you’ll be responsible for paying HOA dues monthly or annually. In exchange for fees, HOA management will provide services for the upkeep of common areas and building maintenance. HOA fees for homes differ in each community, with an average of around $200 per month. Before making an offer, it’s worthwhile to ask what the HOA fees cover and how much they are.

  • 5. Moving expenses

    Before you pack, you’ll want to add a line item to your budget for the cost of packing supplies, along with the price of transporting your belongings to your new place. Moving expenses can also include hiring professional movers or renting a truck, moving insurance and utility hookup fees.

  • 6. Home improvement renovations and repairs

    It’s essential to consider your budget for renovations prior to making an offer. All homes require some level of upkeep with an ongoing list of future repairs. Note that some improvements are easier and less expensive to schedule before you move in.

    The best way to save money for buying a home is to have a plan and stick to it. Get started today by following these seven steps for setting up a budget.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

Share this story, choose your platform!

About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.