What to Save for When Buying a Home

Buying a home is one of the most exciting and significant financial decisions you can make. While the prospect of owning your dream home is thrilling, it’s crucial to understand the costs associated with the process and plan your budget accordingly. Beyond the purchase price, there are several key expenses every buyer should be prepared for. Let’s break down the big three: down payment, closing costs, and the earnest money deposit.

1. Down Payment

The down payment is likely the largest upfront cost you’ll encounter when buying a home. This is the percentage of the home's purchase price that you pay upfront to secure the mortgage.

• How much should you save? Down payment requirements vary depending on the type of loan you choose:

  • Conventional loans typically require 3% to 20% of the purchase price.

  • FHA loans often require as little as 3.5%.

  • VA and USDA loans may offer options with no down payment.

For example, if you’re buying a $300,000 home with a 10% down payment, you’ll need to save $30,000. Keep in mind that a larger down payment can lower your monthly mortgage payments and may eliminate the need for private mortgage insurance (PMI).

2. Closing Costs

Closing costs are fees and expenses paid to finalize your home purchase. These costs cover services such as the appraisal, lender fees, and loan origination.

• How much should you save? Closing costs generally range from 2% to 5% of the home’s purchase price. For a $300,000 home, you might pay $6,000 to $15,000 in closing costs. It’s essential to review your Loan Estimate from your lender, which provides a detailed breakdown of these expenses.

Some buyers negotiate for the seller to cover part of the closing costs, known as seller concessions, but it’s wise to have the full amount saved to avoid surprises.

3. Earnest Money Deposit

The earnest money deposit is a show of good faith to the seller, indicating that you’re serious about purchasing their home. This deposit is typically submitted with your offer and later applied toward your closing costs or down payment if the sale goes through.

• How much should you save? Earnest money deposits usually range from 1% to 3% of the home’s purchase price. For a $300,000 home, this means setting aside $3,000 to $9,000. While it’s refundable during the contingency period (typically the first 17 days of escrow) if certain conditions in the contract aren’t met (like a failed inspection or financing falling through), it’s crucial to have these funds readily available when making an offer.

Additional Tips for Saving

• Start early. The earlier you begin saving, the more time you’ll have to reach your goals.

• Open a dedicated savings account. Keep your home-buying funds separate to avoid dipping into them for other expenses.

• Factor in other expenses. Don’t forget to budget for inspections, moving costs, initial repairs, or furnishings for your new home.

Ready to Start Saving?

Knowing what to save for when buying a home can help you feel more confident and prepared as you navigate the process. By understanding the key expenses—down payment, closing costs, and the earnest money deposit—you’ll set yourself up for success and move closer to achieving your homeownership dreams.

If you have questions or need guidance as you prepare for your home purchase, don’t hesitate to reach out. You can reach The McCarty Group by calling or texting 661-665-SOLD. Our team is here to help you every step of the way!