How Much Money Needs To Be Saved for A House?
Buying a home can be stressful. It could be even more stressful if you don’t have enough for a sufficient down payment. Or worse, what if you can’t actually afford the home you want? These are very real things that happen to people every day – but we don’t want that to happen to you. In this guide we will walk you through the process from your down payment all the way to closing to help you understand the financial journey of purchasing a home.
Purchasing a home can be a pretty complicated and not-very-straight-forward process. There are fees you need to pay throughout the entire process. To help you better understand how much cash you need to have to buy a house, we put together a list of fees to help you start saving. When buying a home, you will likely have to pay the following fees at some point between the seller accepting your proposal and closing day: Earnest Payment Home Inspection Appraisal Fees Final Closing Costs
Earnest money, simply put, is money that you pay when purchasing a home essentially to “claim” the home. Earnest money is typically 1% – 2% of the total purchase price for the home, but not always (could be higher or lower depending on the area). Your earnest payment is made once the seller accepts your offer and the money will be held in an escrow account and will be applied to your down payment when closing on the purchase on your new home.
Typically, a home inspection costs between $400 – $500, but this can vary by location, house size, and other factors. An inspection, although not always required, is important when buying a home. You should hire an inspector to make sure that the home is built well and doesn’t have any damage that may cost you in the future.While you may not want to spend the$400 – $500, that could save you from having to pay $20,000 to fix your roof in 3 years.
A home appraisal can cost between $200 – $600, but the national average is closer to $350. Similar to a home inspection, the cost varies based on factors such as size, location, type of home and more. A home appraisal is conducted by a licensed professional that determines the value of the home you are purchasing. If the home appraises for less than what you offeredm you will have to renegotiate with the sellers or cover the difference out of pocket – adding to your total amount of cash needed to buy a home. Example of a home that appraises for less than offer: Offer: $300,000 Appraisal: $290,000 Amount of additional cash needed at closing: (Offer – Appraisal) $300,000 – $290,000 = $10,000 additional needed to close. However, if your house appraises for more than your offer, then your cash-to-close won’t change (or at least it shouldn’t).
Closing costs vary for every home purchase.The average closing costs range from 2% to 5% of the purchase price of the home. Closing costs will change based on the size of your loan, the terms of your loan, the amount of your down payment, your credit score, your income, the state of the economy, and so much more. You will likely know the estimated closing costs before you submit an offer on a home, and if you don’t then you should ask your lender.
Now that you know how much money to save, how are you going to get there?
There are a million ways that you could save your money to buy a home, but not all of them are practical. You could set aside money into a separate account, you could stash cash in a safe, you could invest your money, or countless other savings methods. Or, you could use Financial Hope’s personal budgeting software to get an overall picture of your finances, set financial goals, and create a secure financial future. Financial Hope offers a budgeting solution like no other. With automatic account updates, financial forecasting features and scenario planning (like buying a home), you will be able to have a clear understanding of not only your current finances, but also how purchasing the house will impact your finances. Not only will Financial Hope help you see what you need to save to buy the house, our forecasting and scenario planning will be able to help you see how the new mortgage payment and other homeowners expenses such as electricity and water bills will impact your monthly finances.
Try Financial Hope for free today!