If you’re buying a home in today’s competitive real estate market, knowing how to save and budget can be confusing—but understanding the costs will help. Here are a few things to keep in mind when saving money for a home purchase.
The Down Payment
Saving for a deposit or down payment is a new home buyer’s top priority, but not everyone knows how much they need. While we’ve all heard of the 20% rule, every situation is unique. A local real estate agent can help you set up a savings plan that aligns with your budget and purchase goals while recommending loans and assistance programs. The more awareness you have when buying a new home, the better off you’ll be.
Along with the down payment, you’ll need to take closing costs into account. Closing costs are the payments made to parties involved in a home sale or mortgage refinance, and they may be anything from two to five percent of the total price—unless the seller is willing to help. As with other aspects of the purchase process, budgeting for closing costs is essential.
Good Faith Money
If you want to keep your bases covered, consider setting aside money for an earnest money deposit. These deposits are a show of a home buyer’s good faith when they make an offer, and they’re usually about one to two percent of the purchase price.
An earnest money deposit isn’t an additional cost—it’s like paying some of your expenses upfront. When buyers put earnest money down, they’re using some of their savings to show their commitment to the process.
Although the costs mentioned above are substantial, there’s more to buying a home. Even if a home is ready for move-in, you’ll still pay out of pocket for furnishings, utility deposits, minor repairs, and more.
There’s nothing wrong with the occasional treat, but those small luxuries can add up. If you are saving for a home, it may be time to cut back on coffee shop visits, dining out, manicures, clothing, and other unnecessary expenses. The sacrifices may be temporary, but the benefits can last a lifetime.
You can save even more money by supplementing your income. If you’re already working full-time, consider starting a side hustle. Freelance writing, tutoring, dog walking, and rideshare driving can all add to your savings and help you acquire new skills that pay the bills.
How Much Should You Save?
Most experts recommend saving enough for a down payment, relocation costs, and closing costs—but the amount depends on the home’s condition and whether the previous owner is willing to cover any of those expenses.
The Bottom Line on Saving for a Home
When purchasing a home, being well-informed about saving is essential. Work with a local real estate expert who can answer your questions and address any concerns, and you’ll be more likely to end up in the home you’ve always wanted.