Hey there, I’m Marcie Billen, your friendly real estate agent at Keller Williams Mulinix and Rüya Team Realty in Norman, Oklahoma. Today, let’s delve into the topic of how much money you need to save for a house in order to make your dream of homeownership a reality.

The Unasked Question

Surprisingly, the question of how much money you actually need to save for a house purchase isn’t one I encounter very often. Typically, lenders handle discussions about saving requirements with potential buyers. However, today, I’ll provide you with some insights into the expenses you should consider when planning to buy a home.

Note: I am not a lender, but I can connect you with experts in the field, or you can check out this video.

Determining Your Savings Goal

A general rule of thumb when save for a house is to set aside approximately 7% to 10% of the total purchase price. To arrive at this percentage, you’ll need a clear understanding of your budget, which your lender can help you establish.

Breaking Down the Costs

Let’s explore why this 7% to 10% range makes sense. If you’re considering an FHA loan, the minimum down payment required is 3.5% of the purchase price. So, at the very least, you’ll need to cover this down payment. In addition, it’s wise to set aside funds for closing costs and prepaid expenses.

What Are Closing Costs and Prepaid Costs?

Closing costs encompass expenses like title fees and lender fees, while prepaid costs include expenses related to home insurance and taxes. For instance, if you’re going to save for a house that’s around $180,000, your combined closing and prepaid costs should generally fall within the range of $6,000 to $8,000. Keep in mind that these numbers can vary based on lender fees, insurance rates, and local taxes.

A Word on Homeowner’s Insurance

If you’re relocating from out of state, you might notice that homeowner’s insurance costs more here in Oklahoma, and as you save for a house, this maybe an item where you have to budget in a few extra dollars. Our state faces tornadoes, high winds, hail, and harsh seasons. While insurance may be a bit higher, it’s important to remember that we often enjoy a lower cost of living compared to other regions. Additionally, insurance rates can vary based on whether your property is rural or in the city.

Exploring Different Loan Options

While we’ve touched on FHA loans, there are several other types of loans to consider, including conventional loans, VA loans, and USDA loans. For most first-time homebuyers and many others, FHA and conventional loans are the top choices. Conventional loans typically require a minimum down payment of 5%, and in special programs, you might even find lenders willing to accept 3% down payments, which can be a great option if you’re starting to save for a house.

Conventional Loans: A Seller’s Market Favorite

Conventional loans come with some advantages. For instance, if you put down 20%, you generally won’t need to pay private mortgage insurance. If your down payment falls between 5% and 20%, you’ll likely have to pay for private mortgage insurance, but it can be removed once you’ve paid off at least 20% of your loan. Sellers often prefer conventional loans, especially in competitive markets, which can tip the scales in your favor when competing for a home. Sometimes, it’s worth it to consider a conventional loan as you save for a house.

Can Sellers Cover Your Closing Costs?

Absolutely! Sellers can often cover your closing costs, but this is subject to negotiation and market conditions. So, sometimes closings costs should be considered as you save for a house. For an in-depth understanding of how this works, check out my video on the subject.

Beyond the Purchase Price

While you may have the required 7% to 10% of purchase in already in hand, it’s important to remember there are additional expenses associated with moving into your new abode. Plan to budget for these other items as you save for a house: furniture, appliances, utility deposits, and potential repairs or renovations. In a competitive market, sellers may be less inclined to make repairs, so be prepared to handle those yourself. This can include anything from new carpets and paint to other personalization projects.

Conclusion

So, as you embark on your homeownership journey, consider not only the amount of money you need to save for a house in regards to your down payment and closing costs, but also these extra expenses. A little extra planning can ensure a smooth transition into your new home. If you have questions or need assistance, feel free to reach out. Your dream home may be closer than you think!