How much should you save to purchase a home?
Tips on how to figure out your home purchasing finances.
Buying a home can be exciting, scary, nerve-racking, overwhelming and joyful all at the same time. When purchasing a home, many potential homebuyers focus on saving for the down payment, unaware that more money is needed to secure the property. Items such as closing costs, inspection fees, title insurance and upfront property tax payments are just some of the items that have to be paid for at the closing table that are exclusive of the down payment.
The down payment on a home can range anywhere from 3.5 percent to 20 percent of the home’s purchase price depending on what financial product and program one qualifies for. In addition, final closing costs, also known as settlement costs can be an additional 6-10 percent of the homes purchase price. According to the Department of Housing and Urban Development (HUD), settlement charges can vary as brokers fees, title insurance fees and costs can range from company to company.
Most potential new borrowers tend to ask the seller to cover all or a percentage of their closing costs in a purchasing agreement. Although this benefits the buyer, a seller is not always able to cover the buyers closing costs for a myriad of reasons. If the seller does not pay closing costs, the buyer may be unable to purchase the home if they do not have the funds to pay the settlement costs. As such, Michigan State University Extension recommends that new home buyers should expect to pay their own closing costs and save accordingly.
In order to determine how much one should save for a home, it is first a good idea to review your credit score, look at your current income and determine your purchase price range. CNN Money has a simple calculator that can give you a starting point for determining how much house you can afford. Once you have determined your purchase range, you can calculate your down payment by multiplying by the percentage requirements for the program you believe you may qualify for. For example, persons who obtain a Federal Housing Administration (FHA) backed mortgage are typically required to put down 3.5 percent of the homes purchase price. For a $100,000 home, take $100,000 and multiply by 3.5 percent. This equates to $3,500. Remember, this does not include the closing costs, which could be an additional $6,000-$10,000. Altogether, a potential borrower could expect to save $9500-$13,500 in order to purchase a $100,000 home.