From Renter to Owner: How Much Do I Need to Save?
A two-word phrase haunts anyone beginning the process of budgeting for a home: down payment.
Recommendations on how much to save vary drastically, and every market demands a new calculation and price point. The tough reality is that the down payment doesn’t represent the full scope of what you’ll need to save up for and pay upon closing on a home. After paying down debts to prepare for your home loan application, evaluate your market and calculate the additional fees to arrive at your true savings goal.
Check Out the Market
Average home prices vary drastically depending on state, region and even neighborhood. Homes in cities tend to run at a higher price point, plus metrics like crime rate and school districts can play a large role as well.
Start by searching for homes in your area and checking out listing prices for homes you’d be interested in buying. Most platforms allow you to narrow your search by number of bedrooms and bathrooms, square footage, and even features like air conditioning or a dishwasher. Check out the ballpark range of prices you’re seeing for homes with your desired qualities, and keep that range in mind for later calculations.
Set a Down Payment Goal
Once you’ve got a general feel for the prices in your market, calculate what you’ll need for the down payment portion of your new home costs. Ideally, you’ll save enough to put down 20% of the home’s overall cost in addition to the other closing costs. 20% is the magic number because it gets you out of paying private mortgage insurance (PMI).
If you’re in a pricey or competitive market and a 20% down payment feels like it’d take you half your life to save up for on top of rent, know that you have options! You can purchase a home with as little as 3% down. Just keep in mind that interest rates can vary dramatically based on how much you can put down, and some lenders come up with PMI workarounds if you can put down even 5%. A quick, commitment-free conversation with a lender to nail down these details is a good idea, even if you’re very early on in the savings process.
Calculate Additional Fees
Another benefit of speaking to a lender is that the conversation will help to clarify the other expenses you’ll be responsible for at closing. Most commonly, buyers are responsible for paying for inspection, the appraisal fee, a lender’s underwriting fee, title fees, and prepaid expenses.
Prepaid expenses are placed in escrow until they are due, at which point your lender will pay them with your monthly costs. These can include anywhere from two to twelve months’ worth of taxes, interest and insurance payments. The amount collected up front depends on your location and how often real estate taxes are collected in your area.
Some home purchases may also require utility adjustments, and some lenders request cash reserves up front.
As daunting as it can feel to calculate these totals and see a huge sum glaring back at you, knowledge really is power. Prepare for your closing by taking stock of each detail, and move forward in your budgeting from there.
As you explore your home buying options, discover how Atmos works! With Atmos, the homebuilding process is streamlined and simplified. Connect with experts to get you started and help you understand the full picture.
