Things to Consider as You Save for Your First Home
Buying your first home is a big milestone. To afford your first home, start by understanding how much you should save. The best way to avoid financial surprises is to work closely with your lender throughout the process. They'll help you determine exactly how much you'll need to seal the deal.
Short-Term Savings
- Save 20% of your gross income monthly for a quicker down payment and better loan rates.
- Example: Earning $100,000/year, save $20,000 in 12 months, $30,000 in 18 months.
Long-Term Strategies
- Save 10% of your income for more flexibility in timing your purchase.
- Improve your credit score to secure lower interest rates.
Don't Forget Closing Costs
- Closing costs: 2%-2.25% of purchase price (e.g., $10,000-$11,250 for a $500,000 home).
- Down payment: Depends on loan type (e.g., 3.5% for FHA loans, or $17,500 for a $500,000 home).
- Approximate total needed: About $27,500-$28,750 for a $500,000 home, including closing costs.
Cash On-Hand
- Lenders may require savings for initial mortgage payments.
- Example: If monthly PITI (principle, interest, taxes, insurance) is $2,000, save an extra $4,000 for the first two months.
- Consider home renovations that may be needed upfront.
Down Payment & Mortgage Insurance
- Lower down payment = higher mortgage insurance premiums.
- Aim for at least 1.5x your down payment to cover all homebuying expenses.
- Mortgage insurance is typically required if down payment is less than 20%.
Visit our step-by-step first-time homebuyer guide for more information.
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