If you're thinking about buying a home, you'll need to figure out how much money to save in order to make it happen. By calculating how much you can afford to pay for a home, as well as how you'll pay for a down payment and other initial expenses, you'll be taking important first steps toward buying your new home.
Our REALTORS® share the following information about how much you should save — as well as how to do it — to buy a house:
- Calculate what you can afford.
When you're calculating how much you can afford to spend on a home, a good rule of thumb is to make sure your monthly housing payment is no more than 25% of your take-home pay. Make sure to include not only your monthly mortgage payment but also your property tax, homeowners' insurance, and in some cases, private mortgage insurance and homeowners' association fees.
- Devise a savings plan for your down payment.
You'll need to save enough money to make a down payment on your future home. Although some types of mortgages will let you pay a relatively low amount, the more you can save to put toward a down payment, the better off you'll be. That's because if you put down less than 20% of the home's price, your lender will require you to pay for private mortgage insurance monthly. This fee often ranges from a little over a half percent of your loan amount to closer to 2%. If you can't manage to pay 20% of your loan value, at least try for 10% to avoid extra interest and fees.
- Include any extra costs.
When you buy a home, you'll typically pay about 3% to 4% in closing costs. These fees usually include the cost of a home inspection, appraisal, paperwork processing fees, and more. You may also have to pay additional money for other services, including title service fees. While you're figuring out your housing budget, also make sure to also include any moving costs in addition to the cost of any immediate needs at your new home. For example, you may need window treatments or a lawnmower as soon as you move in.
- Streamline your budget.
Take a good look at your spending habits to determine where you can cut back. By making several changes, you can probably save more than you think. For example, if you regularly eat meals away from home, you can reduce the number of times you do this and reserve it for special occasions. And if you're paying for cable, look at eliminating this monthly bill and instead relying on streaming services, which are usually less expensive. By taking a close look at your spending, you'll be able to find areas to cut so you can add the savings into your down payment fund. And even though saving for your retirement is an excellent habit, you can pause these contributions until after you've managed to save for your down payment.
- Choose where you want to keep your down payment.
You'll need to have an account where you can make deposits as you save for your down payment. The money needs to be accessible but kept separate from your regular accounts. A money market account is often a good choice since the money is readily available and earns a small bit of interest until you need to withdraw it.
Contact Ayre/Rhinehart REALTORS® to see Midland homes for sale. We'll help you find a house within your price range that you'll love to call home!