How Much Money Should I Save Before Buying a House?

By Amy Beardsley

Posted on September 9th, 2022

How much money to save | Down payment | Home inspection | Earnest money | Closing costs | Moving expenses | Move-out fees | Homeownership costs

Illustration of man saving money

Many prospective homeowners ask the same question: How much money should I save before buying a house? It's an important consideration when stashing away your cash for a down payment.

But most buyers don't realize saving for a down payment isn’t the only upfront cost. Buying a home also comes with numerous hidden expenses, like closing costs, insurance, and property taxes.

The best way to avoid unpleasant surprises on closing day is by working with an experienced real estate agent. An agent can help you understand the full financial picture of buying a home, from explaining the intricacies of closing costs to finding homes within your budget.

If you're planning to buy a home soon, our friends at Clever Real Estate can help you take the first steps. Clever is a free service that helps you access expert advice and personalized introductions to pre-screened agents near you.

Clever agents are vetted for their experience and sales records — and they work at national brokerages such as Keller Williams, Century21, and RE/MAX.

👋 Talk to a real estate expert today!

How Much Should I Save for a House?

Real estate agents are used to fielding questions about budgeting, such as “I make $25K a year, can I buy a house?” or "Can I buy a house making $20K a year?"

The honest answer is, it depends. For a $300,000 home, you can expect to pay:

Expense
Cost
Down Payment (20%)
$60,000
Earnest Money (1-2%)
$3,000 to $6,000
Closing Costs (3-6%)
$9,000 to $18,000
Home Inspection
Approx. $250
Moving
$1,600 (local) to $2,300+ (cross-country)
Total
$73,850 to $86,550

The most important consideration is how much you can afford to spend.

Having a realistic budget will allow you to work backwards and save for a down payment, closing costs, and other homeownership expenses — without overextending your funds.

Homeowners who buy more property than they can afford risk ending up with buyer's remorse.

In fact, when our friends at the Clever Data Center surveyed 1,000 homeowners, more than half said they were surprised by hidden costs like maintenance and upkeep. One in eight homeowners felt these unexpected costs outweighed the benefits of homeownership.

6 Ways to Save Money to Buy a House

  • Create and follow a budget. Budgets help you control your money so you know where it goes. You can adjust your spending to meet your goals.
  • Reduce your monthly expenses. Cut out impulse shopping, ordering take-out, or buying things that aren’t part of your budget.
  • Increase income. Ask for a raise, search for a higher paying job, or start a side hustle to bring in extra cash..
  • Pay off debts. Eliminate balances on credit cards, car loans, and student loans to save money and boost your credit score.
  • Pay yourself first. Automate savings drafts every month before budgeting your bills. It can boost your emergency fund or investment account and hedge against unexpected costs.
  • Ask for help! Ask family and friends if they can give cash toward your down payment. Some loans allow others to help cover your down payment, just check with your lender.

How Much Should You Save for the Down Payment?

A common rule of thumb is to save 20% of the home’s sale price as a down payment — but minimum down payments vary, according to the type of home loan you secure.

Mortgage Loan Type
Min. Down Payment
How Much to Save ($300,000 Home)
Conventional
3%
$9,000
FHA
3.5%
$10,500
USDA
0%
$0
VA
0%
$0

Suppose you fell in love with a craftsman-style house in the perfect neighborhood with an asking price of $300,000. A 20% down payment would cost you $60,000 plus extra to cover closing costs.

For most Americans, saving that much is a difficult endeavor. But there’s a big benefit to putting down such a large amount: You can skip private mortgage insurance (PMI).

If you put down less than 20%, you'll end up paying an additional 0.5% to 2% of your loan balance every year for PMI.

If you don’t mind paying for PMI, you probably won’t need such a hefty sum. Lenders offer mortgage programs that offer low down payments:

  • FHA Loans: Backed by the Federal Housing Administration, FHA loans are government-insured. Can you get an FHA loan twice? Yes, and you don’t have to be a first-time homebuyer to qualify.
  • USDA Loans: Geared toward helping low- and moderate-income families, USDA home loans are available in eligible rural areas.
  • VA Loans: Military members, veterans, and their surviving spouses can qualify for VA loans.

A qualified lender can help you identify which loans you're eligible for.

Can I Buy a House with No Money Down? 🤔
The simple answer is, yes! Popular loan programs let you buy a home with no money down.Going with a no-money-down home loan can help many Americans achieve their dream of homeownership.

But remember: The less you put down, the more expensive your monthly payments will be.

Plus, putting down less than 20% can add the cost of PMI (or a funding fee for VA loans) on top of your already expensive closing costs and mortgage payments.

Additional Costs of Buying a House

Home Inspection

A home inspection costs about $250, but it’s a worthwhile investment. Home inspections can give you an idea of whether the home is up to code, what repairs you might need to make (such as a new roof), and what harmful things to remediate (like radon or mold).

Earnest Money

If you found the house of your dreams and made an offer, you’ll be asked to make a good faith deposit. Also known as earnest money, it assures the seller you are serious by buying.

Typically, buyers provide 1-2%of the home's purchase price as the earnest deposit. The lender sets up an escrow account to hold the payment until closing. Then, it is applied toward your down payment or other costs at closing.

If the deal falls through, you can get your earnest money back if you backed out for an approved contingency (for example, if the home doesn’t pass inspection). Otherwise, it goes to the seller.

Closing Costs

Typically, closing costs are between 3% and 6% of the home purchase price. But some sellers are willing to cover part or all of the closing costs. So, be sure to negotiate fees in addition to the sale price.

Closing can include the down payment, but additional costs include:

  • Home inspection fees
  • Property appraisal
  • Running your credit report
  • Real estate transfer tax
  • Title search and insurance
  • Property taxes
  • Homeowners insurance
  • PMI

Your lender will provide an estimate of your closing costs within three days of receiving your mortgage application — it’s required by law.

Moving Expenses

The cost of moving expenses can vary widely. Two of the biggest factors are the amount of personal belongings and the distance between where you’re moving from and where you’re moving to.

Get estimates from several moving companies, but expect to pay around $1,600 for a local move or $2,300 or more for a cross-country move.

Move-Out Fees

Finally, you could have move-out fees if you cancel your rental or lease agreement. Find out from the leasing office or owner if they can waive the fees if you find a renter to take over the lease.

Don’t Underestimate the True Cost of Homeownership

The costs of homeownership don't end after the closing day. Your new home may require minor or significant repairs, remodeling, or updating. You may also need new furniture, decor, or appliances.

According to our friends at the Clever Data Center, a few of the priciest annual homeownership costs include:

  • Utilities ($4,829)
  • Home improvements ($3,300)
  • Maintenance and repairs ($3,018)
  • Property taxes ($2,578)
  • Homeowners insurance ($1,680)

It’s best to prepare yourself and your finances before buying a home. You can cushion unexpected expenses by setting aside emergency funds to cover repairs and other costs.

Next Steps: Talk to an Expert

If you're ready to purchase a home, you'll need a great agent on your side. A qualified real estate agent can help you understand the true cost of homeownership and find homes that fit your budget.

If you're ready to take the next step, our friends at Clever Real Estate can help. Clever's licensed concierge team is ready to answer your home buying questions — and it's free to get personally matched with top-rated real estate agents near you.

🙌 The Easiest Way to Get Cash Back After Closing!
Did you know 41 states and Washington D.C. allow cash rebates for home buyers? Our friends at Clever can match you with trusted local real estate agents and help you get 0.5% cash back. You can spend your money any way you'd like — no questions asked!

Recommended Reading

FAQs

How much should I save for a house?

Experts recommend saving for a 20% down payment, plus earnest money (1-2%), closing costs (3-6%), and miscellaneous expenses such as a general home inspection and movers. For a $300,000 home, that would add up to around $74,000 to $87,000. Learn more.

How much savings should I have after buying a house?

Experts recommend keeping at least six months worth of living expenses in savings at all times — or more, if you can manage to stash away funds for a rainy day. Learn how much you can expect to spend when buying a house.

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Posted in Buying a House, Closing on a House