Sunday, September 18, 2011

How Much Should I Save for a House?

I have decided to make my recently rediscovered ING savings account my house down payment fund. Whoo-hoo! This means that since I forgot about the money in there, I am starting with $67 toward a place. Can I start house-hunting yet?

Just kidding. But the question I am really pondering is how much I need to save to buy my own place?

I know this is a complicated question. It depends what kind of place I'm looking for, where I want to live, if I'm buying this place with a future husband or on my own. All important questions, and all ones I am not sure of the answer to.

I love where I live, so I'd like to stay somewhere in Long Beach. As close to the beach as I can get, but I may need to look further away to find something affordable. I'd like to buy something I can stay in for a while, meaning a kid or two could live there. So at least a two bedroom, possibly a three if I can swing it. I would be okay with a condo, though if I could find a house, that would be splendid. I would think that this topic will eventually be merged with BF, but as of now we're not quite there.

I know I can just start saving, but I think it would be much more motivating to have some idea of how much I need to save. I've heard 10% is an okay downpayment, and that 20% is better. I've heard of closing costs, but I don't know how much that would be. It seems everyone I know who buys also has to do some sort of repairs or renovation before they move in, so I assume I'd want to save for that too.

As of now, I'm shooting for saving $30,000 which can be re-evaluated as the need arises. It's more money than I've ever conceived of saving, but it does motivate me to get going ASAP. Anyone have any advice on how to figure out how much to save for a down payment?


  1. I can't tell you how much to save for a downpayment because we only put 4% down and borrowed money from family to help. (I was a....spontaneous decision. Kinda)
    It's hard to know how much you will want to/be able to spend on a house because the housing market fluctuates so much, but I think starting with $30,000 is great! I can recommend that, especially if you want to have kids in the house, don't go with a condo. The walls are thin, you're right next to other condos, and they don't have as good of a resale value. So save your money and go for a house rather than a condo or townhouse. We briefly considered a townhouse, but I can't tell you how happy I am that we actually went with a house!
    That's just my 2 cents as a recent home-buyer.

  2. I don't think owning a house is the end all but it is a good goal. The more you put down, the better interest rate you get. We are currently refinancig to a 15 year loan and our payment is only going up $300 a month....interest rate is everything. Closing costs run about $3000 if I remember correctly. We bought our home for $220,000 15 years ago. You should be able to get a nice 2 bedroom for that price...if you are lucky, a three bedroom.

    As far as renovations...I don't think that's always necessary. I would plan on painting and cleaning the carpet. We have finished concrete downstairs-that's another good option if the flooring is awful and you don't want to replace it write away.

    Best of luck to you on your new adventure. You can figure out your payment really easily by using Dave Ramsey's mortgage calculator. We are paying 3.265% interest on our new loan balance of $185, much cheaper to live in our house than to rent. But then again we have to pay taxes and pay for all repairs too.

    PS-a good rule of thumb for your payment-shouldn't be more than 25% of your take home pay.


  3. With the recent changes in the land of mortgages, you will need to put down a heftier DP to secure conventional financing at a low interest rate. It all depends on your credit score, bank balances, current income, etc. There are also other programs through Fannie Mae and the like if you go the foreclosure route (HomePath Financing, etc.) that don't require a large DP. My thought is that 20-25% is the golden standard right now, so shoot for that. 15% is also a good target to get you started.

    If you put down less than 20%, be prepared to potentially pay PMI.

    Also, don't forget about property taxes, any common assessments (if you go the condo route), and insurance premiums (homeowner, etc.). When deciding how much of a monthly payment you can afford, a good rule of them is less than 30% for all housing expenses combined including utilities, but 25% is even better.

    Ask for the home's past utility statements to get an idea of your heating/cooling/electric expenses. Old buildings = higher costs for utilities.

    Closing costs average 2-4% of the home's purchase price. Most are closer to 2.5-3% now. As a buyer, you may have the advantage of getting the seller to pay these, it all depends!

    Don't forget to also have moving, furniture, and renovation $$ saved up in addition to your E-fund and DP fund. I saved $10K for all of this, and I came close to spending that much. Even if you think you only want to paint your new place, there's always something else that pops up!

    Going forward, create a home maintenance fund where you're saving for things like new appliances (if they're included in the sale, if not--budget for those upfront, too!), gutters, siding, lawn care, etc, etc, etc.

    Homeownership is incredibly rewarding IMO, but it's also nerve-wracking and expensive at times. Good planning helps alleviate the potential stressors and will give you peace of mind with your decisions.

    Good luck; it's a crazy yet amazing process!

  4. 20% for a down payment is very good. Also our closing costs were around $6,000, but the seller paid all of it.

  5. $67 sounds like you're well on your way to home ownership! ;) lol!

  6. My best advice (as a new home-owner) is to save up for the 20% down payment and avoid paying the PMI. I've seen mortgage estimates where the PMI is super low, but mine was going to drastically increase my monthly payment, so I chose to put down the 20% and save myself more money in the long term.

    Don't forget to take into account the little things, like some of the above comments made. My house didn't come with a refrigerator and that was something I was incredibly unprepared for. Luckily, we wrote it the contract and the builder (who I bought the house from) paid for it and the closing costs.

    On a similar note, when it comes time to start looking, I cannot stress enough how important it is to have an excellent realtor. Yes, get a realtor. As much research as you do, as prepared as you think you are, you simply aren't. You need help. Realtor know so much about homes, prices, mortgages, contracts, decorating (no joke - my realtor helped me find furniture), etc. You don't pay the realtor directly - that fee comes from the seller - so you don't have to worry about an extra expense, which makes it even more worth it. Shop around for one, talk to friends, or better yet, find a friend who is real estate agent. You want someone who will go to bat for you and help you negotiate. That's how I ended up getting the price down $2,000, got my closing costs paid for, and got a free refrigerator.

    Good luck saving!

  7. A couple thoughts....

    1. I totally concur with whoever said save for 20% down so that you can avoid paying PMI (private mortgage insurance). PMI often adds $200+/month to your payment - and it's basically throwing money away because less than 20% makes the bank nervous about you as a borrower so they need additional money to make up for that risk.

    2. In terms of percentage of income - who is making ALL of their housing costs under 25% of their take home pay? Probably not many people living in southern California on teacher's salaries. Just sayin'. All of the affordability calculators I looked at said 28-36% of GROSS monthly income should go to housing costs(mortgage+HOA+taxes+insurance)and debt payments combined. So if you have no other debt, then you have more budget money to work with. I went conservative by that standard, and it has been totally manageable.

    3. You definitely need significant additional savings besides your down payment to buy appliances, furnish your home, paint, and pay for random stuff that comes up. Also, just generally you acquire more liabilities with home ownership, so you need a bigger savings cushion - even after you pay for all the initial stuff. (i.e. The roof started leaking. Shoot.) Also, if you ever want to talk about this stuff in person with more real numbers, I am totally down =) And congratulations on getting the gov't money repayment stuff figured out with the school loans! That's awesome =)

  8. How much does an average house like that in the area you want to live cost?
    $67 is a start :)

  9. As the former treasurer of a condo association, I'd recommend your not getting a condo. Since you like to be in control of your budget, I think that you'd find condo life very frustrating. In a condo, you can influence but you cannot control how much money gets spent on what or when.