“How to Save and Budget for Your Dream House”

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How Much Money Do You Need to Buy a House?

Buying a home is a significant financial milestone and a key part of the American Dream. As of May 2024, the median home price in the United States was $419,300, according to the National Association of Realtors (NAR). While you don’t need to have the entire amount upfront, your down payment and closing costs can add up quickly. Let’s explore how much you need to save, where to keep your savings, and effective strategies for saving.

Down Payment

The down payment is the portion of the sale price you pay upfront, with the remainder financed through a mortgage. Traditionally, a 20% down payment is recommended, but it’s not always necessary. For instance, a $400,000 home would require an $80,000 down payment. While a larger down payment can lower your monthly payments and eliminate mortgage insurance, many loans have lower requirements:

• FHA loans: Require as little as 3.5% down for first-time homebuyers with a FICO® Score of 580 or higher.
• VA loans: Available to certain U.S. service members, veterans, and surviving spouses with no down payment requirement.
• USDA loans: For low- and middle-income homebuyers in rural areas, often with 0% down payment.
• Conventional loans: Some require as little as 3% down, depending on the borrower’s financial situation and the lender.

Closing Costs

Closing costs, which range from 3% to 5% of the purchase price, include various fees paid upfront when finalizing the home sale. These costs can be negotiable and typically cover:

• Fees to the mortgage lender, such as origination fees, discount points, and mortgage insurance.
• Payments to external service providers, including home inspection, appraisal, title search, and real estate attorney fees.
• Prepaid funds for homeowners insurance and property taxes, often placed in an escrow account.

Moving Costs

Don’t overlook the costs associated with moving. Hiring movers can range from $878 to $2,547, according to HomeAdvisor. Additional expenses may include packing materials, moving insurance, heavy item charges, truck rental, gas, storage fees, and furnishing your new home.

Where to Save Money for a House

Saving for a home takes time, and choosing the right accounts can help you earn interest along the way:

• High-yield savings accounts: Offer higher yields than traditional savings accounts, with some APYs as high as 5.55% as of June 2024.
• Certificates of deposit (CDs): Require you to keep your money in the CD for a set period, with rates up to 5.35% as of June 2024. Early withdrawal penalties may apply.

Investment accounts and retirement accounts are generally not ideal for short-term savings due to market volatility and potential penalties.

8 Ways to Save for a House

• Revisit your budget to ensure you’re financially ready to buy a home.
• Set a monthly savings target and automate transfers to your home fund.
• Save work bonuses, tax refunds, and other windfalls.
• Consider a side hustle or part-time job.
• Reduce expenses by canceling unused subscriptions and negotiating bills.
• Explore first-time homebuyer programs and grants.
• Negotiate a raise or one-time bonus.
• Consider taking on a roommate or renting a more affordable home.

Frequently Asked Questions

How Do I Save for a House While Renting?

Saving for a house while renting requires careful budgeting and prioritizing your savings goals. Consider cutting unnecessary expenses and finding additional income sources.

Is It Better to Save for a House or Pay Off Debt?

Balancing saving for a house and paying off debt depends on your financial situation. High-interest debt should generally be prioritized, but saving for a down payment is also crucial.

How Long Does It Realistically Take to Save for a House?

The time it takes to save for a house varies based on your income, expenses, and savings rate. Creating a detailed savings plan can help you reach your goal more efficiently.

The Bottom Line

Saving for a house is a significant financial goal that requires planning and dedication. By researching, making a plan, and prioritizing your savings, you can achieve homeownership. Strong credit can also help you secure a favorable mortgage rate. Check your FICO® Score for free with Experian to get started.

For personalized mortgage services, call O1ne Mortgage at 213-732-3074. We’re here to help you every step of the way!

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