Learn more about how you can create a target amount for your home savings strategy.
Average Cost of Buying a Home
The cost to buy a home will be different for everyone because there are many factors that go into the total expense. Here, we can explain some of the common costs of buying a home and their average expenses. You can use this information to create a custom estimate for yourself.
Down Payment
The biggest cost in the home buying process will likely be your down payment. Many buyers aim to save up at least 20% of the price of the home they want to buy. This is because you need to put down this much to avoid private mortgage insurance (PMI) with a conventional mortgage, the most common type of mortgage. For example, the median sales price for a home in Q3 2021 was $404,700, meaning you’d need to aim to save $80,940 if you want to make a 20% down payment. However, many government-sponsored mortgages require a much smaller down payment. FHA loans require as little as 3.5% down for first-time buyers, for example. VA loans can require no money down at all for those who qualify.
Closing Costs
Closing costs are another significant expense to factor into the cost of buying a home. These prepaid expenses include fees for title insurance, home inspection, and appraisal, setting up an escrow account, property taxes and insurance, and mortgage origination. Closing costs average about 2% to 5% of the purchase price of the home. So, for example, budgeting 5% for closing costs for the median-priced home of $404,700, would mean you’d need to save another $20,235. You may be able to roll some of these costs into your mortgage. But by paying them upfront, you won’t need to borrow as much. Your lender should also give you a loan estimate notifying you of all of the closing costs, including which ones you can save money on by shopping around for.
Moving Expenses
Whether you handle the move yourself or hire professional movers, you’ll likely need to budget some amount of money for the move. You can save money doing it yourself but you’ll need a vehicle, lots of spare boxes, and the time and strength to move your items.
Pre-Move-in Remodels and Repairs
You will likely want to do some work on your home before moving in, from installing a new lock on the door to repainting and installing new flooring. You won’t know exactly what remodeling or repairs you’ll need to pay for until you choose a home. But you can include some funds for this work in your savings budget.
Decorating and New Furniture
Furnishing and decorating a home takes years of time and money. But you might want to do some decorating or buy new furniture right away. If your new home doesn’t have a full suite of appliances, you may need to purchase a refrigerator or washer and dryer, for example.
Move-Out Fees
If you’re currently renting, you may face fees when you move out, such as lease breakage (early termination) fees or cleaning fees. If you’re already a homeowner, there will be expenses involved in selling your home, like real estate commission.
Starter Home Repair Fund
Consider starting a separate home repair fund so that you can pay for unexpected repairs without derailing your budget or going into debt. The fund can pay for expenses like replacing a water heater or furnace or repairing a broken refrigerator. Most experts advise saving around 1% of your home’s value per year toward home maintenance. For a $404,700 house, that would be $4,047 per year or $337.25 per month.
How Much Do You Need To Save To Buy a Home?
Your down payment and closing costs will probably be your biggest expenses when buying a new home. Luckily, those two expenses are often easy to plan for because you can estimate the average expenses in advance. If you know what type of home you want to buy, where you want to live, and what type of mortgage you’ll use, you can calculate a target amount to save. The other costs like moving expenses, home furnishings, and moving costs can be more difficult to quantify in advance. You may want to consider budgeting an estimated amount for these expenses.
