Purchasing a home is a significant financial decision, and one of the most important factors to consider is how much money you have saved up before making the purchase. While there are many factors that can impact how much you should save, a general rule of thumb is to have at least 20% of the purchase price saved up before making an offer on a home.
Why 20%? This amount will typically enable you to avoid paying private mortgage insurance (PMI), which is an additional monthly expense that is required if you put less than 20% down on a home. PMI is designed to protect the lender in case you default on your mortgage, but it can add hundreds of dollars to your monthly payments. By having 20% saved up, you can avoid this added expense and make your monthly mortgage payments more manageable.
In addition to the down payment, it’s important to also have savings set aside for closing costs, which can range from 2-5% of the purchase price. These costs include things like appraisal fees, legal fees, and title insurance, and they can add up quickly. By having savings set aside for these costs, you can avoid the need to borrow additional money or use credit cards to cover these expenses.
Of course, the amount you should have saved up before buying a home will also depend on your individual circumstances and financial goals. For example, if you have a higher income and good credit, you may be able to qualify for a loan with a smaller down payment. On the other hand, if you have a lower income or less-than-perfect credit, you may need to save up more money to make the home buying process more feasible.
Ultimately, the key to determining how much you should have saved up before buying a home is to carefully consider your financial situation and goals, and to work with a reputable lender to determine the best course of action. By taking the time to save up enough money, you can make the home buying process smoother and more manageable, and ensure that you are making a financially sound decision for your future.
If you need a real estate attorney to help you navigate the buying process, contact The Law Office of Joseph A. DiPiazza, LLC at (201) 597-0065.