How much do I really need to buy a house? If you've been thinking homeownership should be your next major goal, this is an important question to ask upfront. All too often, potential home buyers indulge in magical thinking, convincing themselves they will figure it out as they go along, and that the hidden costs that start popping up along the route to home purchase are no big deal — when in fact, they can be a deal-breaker.
If you've been shopping among Wheeling homes for sale, you've likely wondered how much you should have in hand for your home purchase. Our real estate agents know the ins and outs of financing a home, so here's some practical advice that can help you avoid costly mistakes.
How Much to Put Down on a Home
It makes good sense to put down as much as you can afford on a house. At a minimum, experts recommend saving up at least 25 percent of the sale price in cash for the down payment, plus moving fees and closing costs. That means if a home costs $250,000, it will cost you more than $60,000 for all the buying expenses. It might break down thus:
These figures are sobering for many starry-eyed, would-be homebuyers. These days, most buyers can only manage up to 12 percent of the home price as a down payment, whereas 30 years ago, most came up with 20 percent. So what gives?
Surprisingly, the number one reason home buyers of today struggle to come up with sufficient down payment is student loans. That's 51 percent of home buyers who face this obstacle, while 45 percent are impeded by credit card debt. Another 38 percent report they are burdened by car loans. For many, the effort to get out of debt may seem overwhelming, but the fact is, you need to do it before you buy a home.
You also need an emergency fund. How much? If you owe consumer debt, you should probably save $1000 at the least. When you're out of debt, boost the fund, saving for three to six months of expenses to cover rent, utilities, food, and credit card payments. If you're on your own or self-employed, you probably need a six-month emergency fund in case you incur job loss. A six-month emergency fund is also recommended for families where someone has a chronic medical condition.
There are some fairly painless ways to boost that fund. Try selling your unused stuff on Craig's List, E-bay, Poshmark, or Facebook Marketplace.
Realistically, If You Can't Swing 25 Percent...
If 25 percent is out of your range, shoot for between 10 and 20 percent. Don't go lower than 10 percent; you'll be stuck paying extra in interest and fees, and fall deeper in debt. Set a goal to save up your down payment within two years. Taking any longer could mean you run into other financial burdens that will make saving harder.
Most people can find numerous ways to cut costs if they just buckle down and do it: cut the cable and gym fees; don't eat out so much; forgo vacation; stop buying clothes; buy generic brands. Take those savings and stick them in a modest money market savings account.
It can seem overwhelming to save up enough for a down payment on a home, but with some discipline, you can do it. Need more advice on saving up for a house? Contact us today.