Buying a house can easily become the most stressful decision and process of your entire life. There are so many things to think about, do and sign that it can just get overwhelming. A question you should be asking yourself way before the process starts is “How much to save for a house?”.
Having an appropriate amount saved will make all the difference. It will lead to less stress and a better attitude when things don’t go as planned.
Now is the time to prepare and ask the questions that you need to.
In this post I do a deep dive into the different areas to consider as well as questions you should discuss and be aligned on.
I think its hard to not let a house purchase to be at least a little stressful. However, with the right preparation it can take so much of it.
Take a look below and then click here to get access to a quick spreadsheet I put together to help you do all the math.
Questions to ask yourself when buying a home
What a huge investment! Buying a house is no small feat and something that, while very exciting, should be approached with some thought and analysis.
My wife and I have been through the home buying process twice now. I’m kicking myself for not asking these questions when we bought our first home.
These are all things to think through and agree on with your significant other before taking the plunge and signing on the dotted line!
- what does life look like over the next 5 years? will this house be sufficient?
- how much house do you think you can afford? (not how much the bank says you can afford)
- how long do I want my commute to be?
- what expectations do myself and my significant other have about renovations & timelines?
Avoid this big trap when buying a house
My wife and I make a pretty reasonable income, live well within our means and bought a house accordingly. The next thing we know we’ve got everyone around us buying bigger and nicer homes.
Occasionally we’d ask ourselves “are we missing something?”.
It turns out we weren’t. It turns out our personal finance situation is, well, personal and everyone has their own definition for how they want to live their live.
This is completely ok. I have confidence in the numbers I’ve ran and the life we lead.
However, its just different when the “Jones” family (the people you feel like you need to keep up with) are people you know and talk to frequently.
Its one thing if they live down the street and you don’t know them. Its way better if they are a friend of a friend who you talk to once a year.
It will feel like the worse thing ever if they are much closer to you and its someone you talk to on a daily or weekly basis.
Being in this situation will absolutely make you rethink what you’re doing. Its almost like there is this inherent, internal pressure. Don’t give in! Let your budget, the future you are building for and the numbers do the talking.
From the data below you can see that avoiding the Jones trap is getting more and more difficult as the price of homes across the country go up.
How much to save for a house
Lets just dive right into the numbers. I’m an engineer after all so love NUMBERS!
There is one thing about being a numbers guy that threw me for a loop the first time I learned it. The lesson was that the vast majority of the people let their emotions (and not numbers) make decisions for them.
Me being the thick headed engineer didn’t quite grasp this right away. In my head it was pretty simple. I mean the numbers in your bank account are numbers so why shouldn’t the numbers drive your decision.
There are five categories to take into account when saving money for a house so lets run through each of them!
The dreaded down payment
This is the biggest piece of the house savings puzzle so thought it would be best to tackle this first.
In my mind the goal is to shoot for 20% down. This will save you from paying PMI (which is a fee on top of your mortgage payment). Its not too common to put 20% down but believe its a good goal to shoot for.
Not only will it save you money but, in my opinion, proves you have the ability to save.
While there are loans that will allow you to buy a house for 0% down I think the bare minimum should be 10% down. From the data below you’ll see that you will definitely not be the norm when it comes to your down payment.
There will be a lot of pressure to just throw your hands up and think it can’t be done. It can! Shoot for at least that 10% mark to give yourself some buffer and prove to yourself you can save some money.
Closing costs always seem to be a forgotten item. One reason is because they are often negotiable. If you are able to negotiate that the other party pays for closing costs that likely means you won’t be able to get them to move much on price.
The amount on closing costs always seems so variable. However, a good number to have saved would be 3% of the purchase price. For example, if you happen to be buying a $200,000 a home it would require somewhere in the neighborhood of $6,000 in closing costs.
Again, closing costs are fairly variable so are a little hard to pin down.
Moving expenses will vary dramatically on a case by case basis. However, it may be something to keep in mind.
Honestly, even if you are moving local the combination of packaging supplies (boxes, tape, etc), a moving truck and some food to pay your moving crew (your family) may add up to several hundred dollars.
In the grand scheme of things (after considering down payment and closing costs) its a drop in the bucket but still something to be aware of.
This is definitely one to watch out for. My wife and I are bit of project people so have done quite a bit to our homes before we move in. In each of homes we’ve painted every wall and put down new flooring throughout.
Thats a major investment.
With everything going on in the home buying process this conversation is one that may not happen but it is so important.
Its vital that you and your significant other are on the same page when it comes to what expectations are regarding what projects will be completed and a timeline for those projects.
Furnishing your new home
This is the last area and another one that can really bite you. This is an area that I usually recommend to people that you slow play. Furnishing a brand new home with brand new furniture and decor can cost a fortune.
Start with some priority items or wait till certain things go on sale before buying them. If you end up furnishing your new home it will likely be the second biggest drain of your savings account.
Buying a house can be a really stressful time. Doing any amount of preparation or savings is going to go a long way towards taking some of that stress away AND set you up for financial success in the future.
If you are looking to get your financial feet on the ground take a look at some different types of budgets, the steps to buying a house or even sign up to get free access to the sheet to help you with your house savings math.