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How much money do you need to buy a house?
Buying a home is one of the most challenging things you may do in your life, and it all starts with finding what you like and knowing if you can afford it.
House costs are increasing more and more this year, and I understand you may be concerned about having enough money for a good home.
How much you need for a new house depends on many different factors, like the down payment, the mortgage payment, closing costs, and other fees.
And if you’re unprepared for all of these expenses, you could end up spending more than you can afford on your new home.
Let’s talk about how much money you need to buy a house, what costs come with buying a home, and how to best prepare yourself for this life-changing purchase.
Apps To Make Home Buying Easier
Now before we get into the nitty-gritty of how much money you’re going to need upfront or in loans, here are a few apps that can help make saving and preparing for your purchase much easier:
- Best Website to Compare Mortgage Lenders: itsHome
- Best Finance App For Budgeting & Tracking Savings: Empower (formerly Personal Capital)
- Best App To Check Credit Scores: Credit Karma
- Best Savings App To Spend Less: Capital One Shopping
- Best High Yield Savings Account: CIT Bank Savings Builder
How Much Money Do You Need To Buy A House
When buying a house, you need to know exactly how much money you need.
Whether you’re an experienced homeowner or a first-time buyer, you need to have your costs down pat so you can save properly and not break the bank with a big purchase!
Let’s take a look at some of the costs that go into buying a house:
Down Payment Requirement
The down payment is what money you use to secure the mortgage and gets deposited into an escrow account. The more money you put down, the less you’ll need in loans.
Saving money for a larger down payment on the home price can be challenging, but it’s worth it in the long run to secure lower monthly payments and less interest long term.
The amount of the down payment varies by lender. Lenders don’t always require a 20% down payment of the home price.
But it’s generally recommended that you put down 20% of the cost of the home to avoid paying for private mortgage insurance (PMI), which can add hundreds of dollars to your monthly mortgage payment.
If you’re not able to save money each month for a larger down payment on your own, there are a few options available to you.
You can get a loan from the government or a private lender. You can also look into purchasing a home with someone else, such as a family member or friend.
We put together this list of minimum down payment amounts for different types of loans based on buying a new single-family home as a primary residence.
- Conventional loans – as low as 3% minimum down payment
- USDA loans – 0% minimum down payment
- VA loans – 0% minimum down payment
- FHA loans – 3.5% minimum down payment
A mortgage payment is what you pay each month to secure the loan for your home.
Most lenders require a mortgage payment of at least 20% of the home’s purchase price, though some may require more.
The higher your mortgage payment, the less money you’ll have leftover to spend on other things. Try to find a mortgage that fits into your budget.
When you are buying a house, there are certain costs that you will have to pay to complete the transaction. These costs are known as “closing costs.” Closing costs typically include title insurance, appraisal fees, homeowners insurance, and attorney fees.
In most cases, the buyer is responsible for paying closing costs. However, the seller may be willing to pay them in some cases. It’s important to negotiate this with your real estate agent or broker.
If you are financing your home purchase, your lender will likely require you to pay certain closing costs. These costs may include loan origination fees, underwriting fees, title insurance, and document preparation fees.
Be sure to ask your lender about any specific closing costs that may be associated with your loan, closing costs are typically 2% – 5% of your loan.
So for a $200,000 house loan, you’d pay between $4,000 – $10,000 on closing costs.
House Inspection Expenses
A home inspection is something that you should get when buying a house. A good home inspection will tell you things wrong with the house before you buy the house.
Home inspectors will check to make sure the property is in good condition. They’ll look at things like the roof, the foundation, the plumbing, electrical systems, and more.
If any problems are found, the inspector will report them to you to help you decide whether or not you want to buy the house.
House inspections can cost anywhere from $300 – $1,000, and they’re well worth the price to keep you from buying a money pit!
One of these expenses that comes with buying a house is moving.
Moving can be expensive, and it’s something that many people don’t think about when they’re buying a new home. But it’s important to remember that you’ll likely have to pay for movers, boxes, and other supplies when you move.
On average, people in the U.S. spend about $1,400 to hire a 2-person moving team when moving less than 100 miles away. The range for that was also $800 – $2,500, but you could spend more for more movers or for moving a further distance.
So be sure to budget for these expenses and save up accordingly. By being prepared, you can make your move as smooth and stress-free as possible.
Buying A House With Cash Vs. A Loan
There are two main ways to go about buying a house. You can buy the house with cash or take out a loan to purchase the house.
Buying a House with Cash
Buying a house with cash means that you have the total purchase price of the house in hand. You don’t have to worry about taking out a loan to buy a house, and you won’t have to make any monthly payments on the house.
However, most people don’t have enough cash on hand to buy a house outright, so they’ll need to find loan options.
Buying A House With A Loan
If you don’t have enough money to buy a house with cash, you’ll get a loan to cover the purchase price. This involves taking out a mortgage from a bank or other lender.
The advantage of taking out a loan is that you don’t need to have the house’s total price in hand. You can buy a house with a loan as long as you have a down payment and can afford the monthly payments on the loan.
The downside of taking out a loan is that you’ll be paying back the loan for years or even decades. You’ll also be charged interest on the loan, which will add to the cost of owning a house.
But interest is a part of life and big purchases, and if you use itsHome, you can compare mortgage lenders and potentially find compeititve interest rates for your loan.
In our examples, we included the down payment amount, the closing costs, and the reserve amount for a Conventional loan, VA Loans, and a Federal Housing Administration or FHA loan.
Buying A $100,000 Home
For a home’s sale price of $100,000, the amount of money you probably will need for a conventional loan with 3% down is at least $6,500.
Buying A $200,000 Home
For a home’s sale price of $200,000, the amount of money you probably will need for a conventional loan with 3% down is at least $13,000.
Buying A $300,000 Home
For a home’s sale price of $300,000, the amount of money you probably will need for a conventional loan with 3% down is at least $19,700.
Get Prepared For Buying
It’s no secret that buying a house is one of the most significant commitments you’ll make in your lifetime.
By taking these steps, you’ll be in a much better position to buy the house of your dreams.
Make A Budget
Saving for a down payment on a house can seem like a daunting task, but it’s more manageable if you break it down into smaller goals.
Making a budget is the first step in knowing whether you can afford the monthly mortgage payments, property taxes, and homeowners insurance.
Get Your Credit Score
One of the most important things you can do when buying a house is to get your credit score. Your credit score is a number that reflects your credit history and how likely you are to repay a loan.
You can get a free credit score and credit report from Credit Karma right now! The better your score, the lower interest rates you get.
If you have a low credit score, it may be challenging to get a home loan, but you have options to prepare yourself for a better house at a better interest rate.
By taking steps to improve your credit score, like paying off credit card debt or a personal loan, you can increase your chances of getting approved for a home loan.
Try to start saving money for a house ahead of time. By having money saved up, you’ll be able to cover the costs of buying a house and won’t have to take out a large loan.
There are a few different ways you can save for a house.
- You can start by setting aside money in a CIT Bank Savings Builder savings account.
- Special savings programs, such as a home equity line of credit or a down payment assistance program, can also help you save money for a house.
- You may be able to find a house that’s for sale and has a seller who’s willing to help with the closing costs and require a smaller earnest money deposit.
And if you’re able to save up more than the down payment amount, you can use that money to cover other expenses that come with buying a home, like moving costs and inspection fees.
Shop Around For A Lender
There are a few reasons you should shop around for a home loan lender. Different mortgage lenders offer different mortgage interest rates, insurance premiums, and terms.
First, by shopping around for a lender using itsHome, you can connect with a provider and potientally find a better interest rate or less expensive mortgage insurance from the mortgage lender or financial institution.
Second, by comparing different loans, you can find one that fits your needs better. Lastly, by not rushing into a decision, you can make sure you’re getting the best loan amount possible.
If you go with the first lender you come across, you may end up with a loan amount that’s not right for you, and that’s more expensive than it needs to be or one where you have to pay a mortgage insurance premium.
House Shopping 101
So far, we’ve talked about things you need to do to get prepared for buying a house, like evaluating your credit score, saving for a down payment, and setting up a budget, but there are also some things you need to do when you’re shopping for a house.
Get Pre-Approved for a Mortgage
Before you start house hunting, you can get pre-approved for a mortgage. It will help you narrow down your search to houses within your price range. It also helps you figure out your budget and what kinds of houses you can afford.
Getting pre-approved for a mortgage means that you’ve talked to a lender, and they’ve given you an idea of how much money you can borrow to buy a house.
It shows sellers that you’re serious about buying a house and have the financial means to do so.
To get pre-approved for a mortgage, you’ll need to provide a lender with some information about your income and debts.
The lender will then use this information to determine how much money they can lend you and your interest rate.
Don’t Look Out of Your Price Range
It’s an exciting time when you start house hunting, and you might be tempted to look at houses that are outside of your price range. But, don’t do it!
You might see the perfect house that’s just a little bit beyond what you can afford and try to stretch your budget, but try to be realistic.
If you can’t afford the mortgage payments on a house, it will cause a lot of stress and can lead to you eventually losing the house.
There are a lot of other factors to consider when buying a house, including mortgage payments, property taxes, homeowners insurance, and monthly HOA fees (if applicable).
It’s Okay to Compromise
Sometimes you may not be able to find the perfect house that meets all of your needs. In this case, it’s okay to compromise on some of your needs.
For example, you may find a house with the perfect layout but missing a backyard. Or, you may find a house with a great location that needs some repairs.
But that doesn’t mean you have to give up on your dream home altogether. There are a lot of houses out there that may not meet all of your needs but are still a good fit for you.
So don’t be afraid to compromise on some things when you’re house hunting. This will help you find a house that’s perfect for you and your family.
There’s no one-size-fits-all to the amount of money you’ll need to buy a house, as it all comes down to how much you make and how much you can squirrel away.
Money for your dream house varies depending on several factors – like location, size of the home, and market conditions – it’s essential to have a general idea of what you need before you start house hunting.
You’ll need to get a down payment saved up for a house and use itsHome to look through your lender options. The amount you need for a down payment will typically be between 3% – 20% of the home’s purchase price.
Keep in mind that these are just ballpark figures, and you may need more or less money depending on your situation.
If you have any questions about how much you’ll need to buy a house, be sure to speak with a qualified mortgage lender, real estate agent, or certified financial planner.