Highlights:
- It’s a good idea to put away between 25% and 35% of your home’s purchase price to account for your down payment, closing costs and other assorted expenses.
- While the size of your down payment may vary depending on the terms of your mortgage, it’s considered best practice to save at least 20% of your home’s purchase price.
- Closing costs generally total between 3% and 5% of your home’s purchase price, while other expenses may range from 1% to 5%.
A home is the largest purchase that most Americans will ever make. So, if you dream of homeownership, it’s important to plan ahead and build your savings over time.
Here’s how to estimate how much to save for a home, from your down payment and closing costs to the miscellaneous expenses you may have never considered.
Homebuying costs to consider
There are many moving parts when it comes to estimating the cost of your home. Aside from your mortgage amount, you can typically divide home expenses into three categories: your down payment, your closing costs and the miscellaneous expenses that come up throughout the homebuying process.
1. Down payment
A down payment is a cash deposit, usually made at the time of purchase. The size of your down payment may vary depending on the terms of your mortgage. However, it’s considered best practice to save at least 20% of your home’s purchase price. For example, for a $350,000 home, a 20% down payment would amount to $70,000.
Why is 20% the magic number? First, a 20% down payment reduces your overall financing needs, resulting in a smaller loan with reduced monthly mortgage payments. Second, this number usually exempts you from expensive private mortgage insurance (PMI) payments. PMI is a supplemental insurance policy that helps protect the lender in the event of default. Borrowers typically make PMI payments on top of their mortgage payments until they have built 20% equity in their home.
However, a down payment of 20% of the purchase price is out of reach for many homebuyers. So, most lenders will accept a smaller down payment in exchange for PMI payments or a higher interest rate on your loan.
2. Closing costs
In addition to your down payment, you’ll owe closing costs — a collection of fees and taxes related to the purchase that are generally paid before you’re handed the keys to your new home. Closing costs can vary based on your location and mortgage, but typically include:
- Application fees
- Loan origination fees
- Appraisal fees
- Property taxes
- Attorney fees
- Title insurance
- Escrow fees
- Homeowners insurance
Lenders are required to provide an estimate of your closing costs as part of the mortgage application process. Expect your closing costs to total between 3% and 5% of your home’s purchase price. For example, closing costs on a $350,000 home might range between $10,500 and $17,500.
3. Other, hidden costs of buying a home
You’ll also need to have some cash on hand to cover a variety of expenses that even the most well-prepared homebuyer might not think about. Keep an eye out for:
- Moving costs
- Homeowner association (HOA) dues
- Monthly mortgage and utility payments
- One-time expenses, like unexpected home repairs
Miscellaneous charges can pile up quickly, so you’ll need to save anywhere from 1% to 5% of your purchase price to cover unplanned expenses, depending on your tolerance for risk. It’s also good practice to set aside 1% to 2% of the home’s purchase price per year to cover ongoing maintenance costs.
How much should you save for a home?
It’s a good idea to put away anywhere from 25% to 30% of your home’s purchase price to account for your down payment, closing costs and other assorted expenses. Aiming to save 25% should cover the bare minimum – a 20% down payment, plus 5% in closing costs.
But remember, you’ll need to factor in moving costs, homeowners insurance payments, ongoing property taxes, repairs and other unforeseen expenses. If you’re the cautious type, saving closer to 30% can offer additional peace of mind.
Altogether, your expenses might look something like this:
Purchase Price = $350,000
20% Down Payment = $70,000
5% Closing Costs = $17,500
2% Miscellaneous Costs = $7,000
27% Total Savings Goal = $94,500
How much should you save for a home, according to your age?
There are a lot of variables when it comes to how much you should save for a home including your age. However, one thing remains true no matter when you plan to buy a house: save early and often. The sooner you’re able to start building your savings, the less money you’ll need to put away each month in order to reach your goal.
For example, let’s break down the savings needs for 21-year-old Jane Doe. If Jane wants to purchase a home for $350,000, she’ll need to save between 25% and 30% of the purchase price. That translates to a savings goal of $87,500 to $105,000.
Approximately how much would she need to save monthly and yearly to reach her goal by ages 25, 30 and 40?
How much to save for a house at 25
If Jane wants to buy her home at age 25, she’ll need to save aggressively:
- Between $1,822 and $2,188 each month
- Between $21,875 and $26,250 each year
How much to save for a house at 30
If Jane wants to buy her home at age 30, there’s less time pressure, so she’ll need to save:
- Between $810 and $972 each month
- Between $9,722 and $11,666 each year
How much to save for a house at 40
If Jane wants to buy her home at age 40, she can save at a more leisurely pace:
- Between $355 and $460 each month
- Between $4,605 and $5,526 each year
Of course, when it comes to anticipating housing costs it’s important to remember that every homebuyer’s situation is unique. The amount you’ll need to save depends on many factors, including the real estate market, your home’s purchase price, the type of mortgage you secure and more. But carving out room in your budget each month is the key to a smart savings strategy, no matter when you’re planning to make your big purchase.
