Here’s How Much Experts Say You Should Have Saved Beyond the Down Payment

updated Nov 16, 2022
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When it comes to saving for a home, you may have a figure in mind for your down payment, whether that amounts to a minimum of three percent down or a more healthy 20 percent. While it’s a huge accomplishment to reach that savings mark (seriously, high five to your fiscal discipline), you haven’t exactly crossed the finish line just yet. Simply saving for a down payment isn’t enough to get you in a home, plus you’ll want to furnish your bank account with a financial cushion when you become a homeowner.

We asked mortgage lenders and other financial experts: “How much should you have saved—beyond your down payment—before purchasing a home?”

Of course, like many things in real estate, there’s no one-size-fits-all answer.

But, at the bare minimum, you’ll need to have an additional three to five percent of the price of home saved to pay for costs associated with closing, which could include lender fees, title and escrow fees, transfer tax fees, and possibly money to fund an escrow account, explains Alfredo Arteaga, an Irvine, California-based loan officer with Paramount Residential Mortgage Group. (Yes, in most scenarios, you could finance your closing costs, but that, of course, translates to more interest).

Also, Arteaga points out that some lenders will want to see proof that you have some money socked away in savings (a.k.a.”liquid reserves”) to ensure that you’re not overextending yourself once you close out on the loan.

Beyond that, you’ll also want to have some reserves in case of an emergency.

“It’s often a balancing act between cash to close and a healthy savings account,” says Nicole Rueth, a branch manager for Fairway Independent Mortgage Corp in Colorado. “A new homeowner is best served to have a few months’ mortgage payment in the bank for emergencies.”

So altogether a good ballpark, expert-approved figure? Three to five percent of the home’s value for closing costs if you’re planning to pay with cash, a set budget for furnishings, plus three months’ mortgage for emergencies. And, of course, a healthy amount in your retirement savings (though that’s an entirely different topic in itself!)

It is important to say that many people do end up buying with less in the bank than is expert-recommended—it’s just, often, homeownership is a lot more comfortable with a financial cushion.

Here’s what else to potentially add in to your home-buying budget/closing costs and beyond:

  • Home appraisal fees: A professional analysis of the property’s market value; it can be a few hundred dollars, says W. Michael Wise, vice president Senior Lending Manager at JP Morgan Chase.
  • Home inspection: A detailed report on the condition of the house, highlighting any significant problems that might affect the property’s value, can range in price, Wise explains. You can plan to spend roughly $200 to $1,000, he says.
  • Origination fees: Fees charged by the bank to cover the processing of the loan and administrative costs can amount to 0.5 percent to 2 percent of the loan amount, Wise says.
  • Moving costs: Moving can be an expensive endeavor (here are a few creative tips for saving on your next move), and can vary depending on how far you’re moving and whether you hire movers.
  • Homeowners Insurance: Insurance depends on the value of your home, but paying in full for your annual coverage could cost you around $700 to $2,500, explains Wise.

What costs associated with moving can be put off?

Sure, it’s tempting when you move into your new home to want to go all-out furnishing and decorating your home. But patience is a virtue.

“There are certain things on your want list—like new furniture—that can take a year or two,” says Wise. “Sometimes it’s best to focus on a smaller area that you often use, like a kitchen or bathroom, and then save some of the more expensive purchases for the second year in a home.”

Also worth noting, you’ll want some cash in savings to avoid using your credit cards to purchase furniture or foot moving expenses until the mortgage has been funded and recorded, says Mike Sasses, sales manager of Arizona-based Offerpad Home Loans.

“During the loan process, it is extremely important to watch spending habits and avoid things like moving money in between accounts, paying down credit card balances, racking up credit card debt,” he says.

If you’re unsure how a transaction will impact your loan, reach out to a loan officer, Sasses suggests.

Now, on to the next question: Should you buy now or wait until you have more saved? Here’s what experts have to say about that loaded question!

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