DH and I have never owned a home but are currently saving for a down payment. We have our car and college paid off, so our main monthly payment right now is rent ($800, utilities/satellite/internet included). We're thinking of buying a house in the fall in the $80,000 range since we can get a decent 3 bed, 2 bath in our area for about that much. If we want to purchase a home for that price, how much should we have in savings? We'd like to put 20% down and will still need an emergency fund/closing costs/savings...does anyone have advice on what a wise amount to have set aside would be and why? We try to be frugal and would love to own a home but don't want to get in over our heads. I stalk home buying threads on here religiously and it sounds like a lot of you have plenty of experience/wisdom!
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First off, I wish I could buy a house for $80k here ;). I know it's all relative, but gah!
Do you know anybody who's a real estate agent? They can give a sample closing costs breakdown for your area based on a selling price of $80,000. Closings costs depend on where you are (how taxes run, for instance. Here the buyer pays 1% and the seller pays 1% transfer tax), what time of the year it is (how much you have to reimburse the seller for bills they've already paid), etc. etc.
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@tororojo: I agree with StrawberryBee, wish I could buy a decent house for that price, lucky you! $80k was our 20% down payment...
Anyway, definitely save up the 20%. Not sure what closing costs would be in your area, but you can sometimes get those to be paid by the seller. As for savings, I've heard its good to have 6mo worth of living costs set aside.
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@Mrs.Someone: I agree with your post!
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Haha, just keep in mind that cost of living is also reflected in our salaries! I guess I can try and find a real estate person to talk to. I keep trying to do research online but it's hard because costs vary so much by location!
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@tororojo: Wow you can get a house for 80,000? I think I need to move. because where we are, you can't find anything decent under 250k
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We bought an 119,000 dollar home and put down only 6,000 I believe...it was an FHA mortgage. You will have a couple more thousands in home insurance/closing, etc. I would have at least 10,000 available and see where u can get. We only put the minim down but our mortgage is still cheaper than renting!
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After putting your 20% down and paying closing costs you want to still have at least 6 months worth of living expenses in savings (and don't forget about the extra costs that come with home ownership like property taxes)
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@Mrsbells: I live in an interesting area--20 mins from downtown Dallas (homes in the city or certain suburbs to the north are SUPER expensive!), so we are in the burbs, close to the city but if you drive 10 more minutes out, it's completely rural. Our neighbor across the street has horses in her yard!
@Mrs. Sketchbook: Gracias! I have been researching FHA--not sure that we'll go that route but I'm interested in knowing everything about it.
@MamaMoose: @Mrs.Someone: Thanks! For the 6 months of living expenses, I guess that means roughly enough to cover monthly house payments + groceries/gas/regular stuff?
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@tororojo: yup. All the necessities.
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We got an FHA loan, so for a 160,000$ home we ended up putting down about 6k. It left us with a few grand in savings, but we were lucky and had the owners pay our closing costs. If it is in your budget to pay more than the 3.5% we did, then go for it, but if you'd rather have more money left over for repairs/emergency, then the FHA is a great way to go. The only thing I wish we had done was have at least 6 months of the mortgage saved up BEFORE we bought the house. We only had 3, and it is getting eaten into with us having a baby in July.
Good luck!
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@tororojo: yeah, all relative lol. it just *sounds* so nice! For me 20% would have been $40,000, which there was just no way I was coming up with, so kudos to you for planning it all out!
The good news is that I don't think TX has any transfer tax!
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I agree with @Mrs. Someone..save up for the 20% and about 6 mo. of expenses.
Oh my goodness...I wish our house would have been $80,000! Such is life where I live, though.
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I'd urge anybody to make sure they have the 20%, closing costs (if you get them covered by seller that's a bonus but still have them on hand because sometimes you can only get a portion and they tend to balloon), and your 6 months' living expenses, PLUS a portion for home improvements, supplies, furniture, decor, and repairs. What that portion is is up to you and what you need, but I was positive that we wouldn't need to buy a thing for the house. Well, then we move in and I want art for this wall that wall and the other, a bigger couch for the living room, a dresser to fill this space, oh wouldn't this chair be cute here, oh look our kitchen plumbing broke the first night there, oh gee we have no dryer vent built into our garage, oh wow our electric was wired all wrong and will cost $800 to fix...
We got an FHA loan and paid 3.5% and nothing in closing costs. We had about $10,000 in savings when we bought the house 6 months ago, and we've struggled to keep it somewhere between $5,000 and $10,000 since. We won't be able to put as much into savings once LO starts daycare in April, and I'm constantly stressed out about not having enough on hand in case something major breaks, one of us loses a job, etc. I love our house and love being a homeowner, but I really, really wish that we had at least waited a year before buying to build up our reserves.
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I agree to think about a budget for new things for the new house. Even a simple project like painting costs about $100. New furniture is expensive. Plus then you need the house emergency fund to figure out if something goes wrong.
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I would avoid FHA or any other loan where you put down less than 20% if you can because you will end up paying what could be several hundred dollars extra a month in PMI if you put down less than 20%.
I would save $3-5k for closing costs, $1k for moving expenses and have an additional at least $5k in savings that is dedicated to home needs only.
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Just to chime in on the private mortgage insurance - it is not always that terrible. We are paying PMI on a 260K loan and because rates are so low, it only adds a little over $100 a month to our payment. This is not ideal, but our APR with the interest rate on our loan and the PMI is still under 4%, so with rates so low it's not the end of the world if moving sooner than you have 20% saved makes sense for other reasons. For us, we are paying less than it cost to rent and for more space, plus were able to get good rates because of excellent credit.
I had heard nothing but dire warnings about PMI when we were in the buying process, so I wanted to share a different perspective. Of course not having to pay it would be ideal.
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@Revel: I also agree. I think it really depends on how much you are paying in rent and also the cost of your house. We only put down 3.5 and we have PMI but overall we are still paying less than we would to rent because our house was pretty inexpensive thanks to a down market. I would definitely put more down on a more expensive house though. The thing is all monthly home expenses (not including utilities) should only be a quarter to a third of your monthly income. Home ownership is expensive for us due to the cost of upkeep for sure, but continuing to rent would not have been a good savings strategy for us. We did spend about 3,000 on home stuff (fridge, repairs, dryer, lawnmower, etc.) so definitely keep all that in mind.
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@tororojo: This post sounds like something I could have asked! We are also looking into buying soon. We can get a nice house for around 80-90k here too. I had all the same questions you did, so no real advice from me, but thanks for posting
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Our house was 105k, and closing costs were about 3k (if I remember correctly). We didn't put down 20% - we did FHA so 3.5%...so that we could have a healthy backup/reno fund. I'm so glad we didn't put down 20%! Our PMI is about $90 a month I believe, so not too bad. By the time we moved into our house we had put about 20k into it with the downpayment, closing, complete gut job, appliances, etc and if we had put 20k into our downpayment we would still have pissy carpet, no appliances and no savings- so that is always great to plan ahead for!.
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fyi - it's not always necessary to have a 10%+ down payment to avoid PMI. we qualified for a conventional loan with only 5% down, which allowed us to hang on to a big chunk of our savings. we live in the dc metro area.
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oh my, 80k for a 3 bed 2 bath home?? That's barely enough for a down payment on a similar home around here!
I would definitely say enough for 20% down and a few months worth of expenses. Ask around with your friends and coworkers to try and find a mortgage broker that you like and trust. Then you can ask them about what kinds of loans you might qualify for, and they'll be able to tell you more about what you are gonna need to save up. Good luck!!!
Good luck!
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