If you’ve been renting and you feel like it’s time to purchase your own home, congratulations! The first step? Bulking up your savings for the down payment.
The down payment isn’t all you need to save for, though. You’ll need to account for closing costs (unless your lender allows you to ask the seller to pitch in for those) and an emergency reserve in case anything unexpected pops up.
The Big Question: How Much Do I Have to Save to Buy a Home?
In most cases, you’ll need to save between 5 and 20 percent of a home’s sale price as a down payment. That’s a pretty tall order—so there are programs available that allow some people to pay between 0 and 3.5 percent as a down payment. Those programs include VA loans and FHA loans. Some Pennsylvania-specific programs, including the Keystone Government Loan Program, HFA Preferred loans and others provide statewide and locality-based assistance.
Closing costs generally range between 2 percent and 5 percent of the home’s total cost.
Using a Home Buyer Program to Save on Your Down Payment
Most people find that it’s better to use a homebuyer program if they have a tough time saving up the money for a down payment. It also cuts the wait time.
Typical Requirements for Common Loans
- Conventional financing minimum: 5 percent down
- FHA financing minimum: 3.5 percent down
- Home Path Financing minimum: 3 percent down
- USDA financing minimum: No down payment required
- VA financing minimum: No down payment required
How to Figure Out How Much Money You Need to Save
Let’s say you’re preapproved for a $250,000 loan. Assuming you’ll use the full amount (you don’t have to, of course), you’ll need at least $12,500 as a down payment using conventional financing. That’s 5 percent. If you wanted to put down 20 percent on a conventional loan, you would need to save $50,000.
That’s just for the loan. That doesn’t include your closing costs—remember, those are between 2 and 5 percent of the home’s total price—which are due when you sign the final paperwork on your new home.
Getting the Money for Your Down Payment
Many people choose to borrow from 401(k) accounts to come up with the down payment on a home, but it’s important that you read the fine print on yours before you attempt to do so. Some 401(k) loans allow only first-time homebuyers to borrow. Others withdraw cash from an IRA or set up CDs and money market accounts in anticipation of coming up with a down payment.
Are You Ready to Buy a Main Line Home?
Call me at 610-608-3119 or contact me online. I’ll help you find one that fits perfectly within your budget and meets your needs.