How Much Money Should I Save Up For A House?

Buying a home is one of the largest purchases a person will ever make. I can’t think of anything that would be more expensive. Since buying a home is such a large part of a person’s life, no one wants to make a mistake. It would be a costly mistake if you did make one. Recently, I…

Michelle Schroeder-Gardner

Last Updated: January 1, 2023

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Buying a home is one of the largest purchases a person will ever make. I can’t think of anything that would be more expensive.

Since buying a home is such a large part of a person’s life, no one wants to make a mistake. It would be a costly mistake if you did make one.

Recently, I received a reader request for a new post about buying a home. The reader asked:

I would love to see a post on the best way to save up to buy a house, i.e. what is a good percentage to put for the down payment, what other costs should be saved for such as homeowners insurance, inspection fees, etc.

I think this is a great question. I am not a home buying expert, but I have bought a home in the past and we are in the very, very beginning stages of buying our next.

With our first home, we got a great deal and bought a house that was much lower than what the bank approved us for. We researched like crazy and thought about all of the different little expenses that would come up when you own a home so that we would not be surprised. There were still a few surprises, but for the most part nothing was too shocking.

However, this is not how many people buy a home. Many people buy a home by only looking at the sticker price, and not really thinking about anything else. There are many expenses that go along with buying a home and all of these little expenses can really inflate the price.

Related: How Much Money Should I Save Each Month? 

Below are questions you may want to ask yourself before deciding on a home:

What expenses come with a home?

There are many expenses that come with buying a home. All of the different home expenses should be budgeted into what you can actually afford. I always think it’s best to be as prepared as possible.

Possible home expenses include:

The actual home. Okay, this one is obvious. This will be the price you actually pay for a home. You need to think about your interest rate and closing costs in this area too. Your interest rate can vary and even just a difference of one percent could mean a hundred dollar or more difference each month.

Property taxes. This can vary widely from city to city and state to state. It’s always best to look at the property taxes before bidding on a home. One house that is priced in one city might have property taxes of $2,400 a year ($200 a month), and a very similar house with the exact same price in another city (and yes, it could just be a mile down the road) might have property taxes of $4,800 a year ($400 a month). That difference in property taxes might be what puts you over your budget.

Home insurance. For this, you want to think about all parts of home insurance. Will your home need any added insurance? Such as for earthquakes, flooding, or hurricanes? Our home insurance is fairly cheap, at around $700 per year. I know someone who pays $2,800 for their annual home insurance though. Prices can vary greatly depending on where you live and how big your home is.

Bills. Different homes will have varying amounts when it comes to bills. For example, older homes tend to have higher utility bills because of inefficiencies in the home (air flow throw cracks in windows and doors, old furnace, etc.). For example, one home that cost $300,000 might have a monthly electric bill of $75 per month. Another home with that exact same price might have a monthly electric bill of $500 per month. Some of the bills you might expect (related to your home) include electric, gas, trash, sewer, water, cable, and more.

Inspection fee. This is usually a one-time fee. Before you buy a home, you should ALWAYS get a home inspection. Don’t skimp either. I recently saw someone on Facebook who was looking for a home inspector and she said she just wanted the cheapest thing possible and she didn’t care what the inspector checked. This is a HUGE mistake. I know someone who skipped a home inspection and a week into moving in, the bathroom upstairs flooded and the floor caved in. This was a ton of damage, and it turned out the problem had been building up for quite a long time. This means a home inspector most likely would have caught this. Different areas you might want to have checked include: the foundation; radon (don’t skip this. We almost did and our realtor advised us not to. Our home actually failed the radon test and we negotiated to have the radon equipment included in the sale contract); mold; termites; plumbing; electrical system; and more.

Furniture and appliances. I know someone who recently bought a home but was complaining that it was completely empty. They said they forgot to budget in furnishing the home, which turned out to be more expensive than they thought. So instead, they had boxes for end tables and only a bed in their new home. Furniture and appliances is an area you should not forget about unless you truly do not care. There are ways for you to save money (such as shopping on Craigslist), but it can still all add up very quickly.

House repairs and maintenance. Don’t forget about this! Home maintenance and repairs can include a lot. This includes:

  • Yard cleanup such as collecting leaves and mowing the lawn;
  • Plumbing such as replacing new pipes, clogs in drains, and so on.
  • Paint. Both interior and exterior.
  • Electrical. What if a squirrel chewed through your wiring?
  • Windows. What if a window broke?
  • HOA. I wasn’t sure where to put this but I think this category is best. Before you buy a place, you should figure out if you want to belong to a homeowners association or not. Their fees can add up quickly.
  • The list goes on and on…

Related: How To Save For A House

 

How much should I budget for a new home?

This is a hard question to answer.

Whatever you budget, you should always keep in mind the total cost of a home. There are many mortgage calculators and mortgage affordability calculators out there you can Google search for that will help you determine a budget.

As you can see above, there are many expenses that go into the total cost of owning a home.

It can be hard to decide on a budget for a home and to actually answer the question “How much can I borrow?”

It’s really just a realistic number that you feel comfortable with. Some people take out a loan that is around 25% to 30% of their after-tax take home income.

For me though, I like to stay significantly lower than that though. I would rather have my mortgage and home related expenses to be somewhere around 10% to 15% of my monthly after-tax take home pay. This is because I am a freelancer, so my income is not stable. I also live in a low cost of living area where housing is cheap, so I could never really imagine paying a crazy amount for a home when I am used to cheap home pricing.

Whatever you do, you should always have a budget in mind before you start home shopping. Also, try to get pre-approved before you go shopping for a home as well because you never know if you will even get approved.

One last note for this section: Your budget does not have to be the same budget that the bank gave you. Banks are notorious for lending out more than people can realistically afford. This means you should take the bank’s budget as a guide, but you will probably be better off if your budget is lower than theirs.

I highly recommend that you check out Personal Capital if you are interested in gaining control of your financial situation and buying a house. Personal Capital is very similar to Mint.com, but 100 times better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it is FREE.

 

How much should I put down for a down payment on a house?

This is another tough question to answer, as there is not a single solution.

For us, I always thought our next home would be paid for completely in cash (many years down the line), but now it just seems like there are many positives in not rushing this process (there are both positives and negatives in not paying a home off early).

In some cases, you may be able to put down just 2.5% on your home, whereas other times you are asked to put down 20% or 30%.

How much you put down on your home really depends on if your goal is to pay it off early or not, and how much you can truly afford.

If you don’t care about paying off your home early, then putting 50% down may not make much sense if there are better investments out there and you don’t feel comfortable putting all of your money down. If you want to pay off your home in a “normal” 30 year rate, then putting down just the minimum (without having to pay PMI – see below) that your bank allows you might be best.

I will say that if you put down less than 20%, you will most likely have to pay private mortgage insurance (PMI), which can be a couple hundred dollars tacked onto your mortgage each month. This might be an expense that makes a home no longer affordable.

However, if you want to pay speed up your home payoff plan, then you might decide to put down as much as you realistically can afford in order to jump on your home payoff goal.

How much do you think a person should save up for a house?

Are there any other expenses I forgot about?


Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Great post and advise. We have not bought a house yet and though paying rent is not ideal, we do not want to rush for many of there reasons you stated.
    We also just moved to a new city. It may seem counter to what many people think, but I often think it is wise to wait about a year to buy when you move to a new place. You may think you know about the ebb and flow of the community and where you want to live, but you will only really know that after you live there!

    1. I agree! That’s why we plan on visiting as many places and staying there for a long time before we actually buy a home.

    2. Megan

      Stasia I totally agree about waiting a while before buying. I am looking at relocating and I can’t imagine trying to house hunt at the same time. How would I know what neighborhoods are right for me? It just seems like too big a decision to rush.

      1. I agree with you Megan. I would hate to buy a home and hate the area because I knew nothing about it.

  2. I really thank my parents because they gave one of our houses to me when I got married. It was the best gift I had, though the feeling of myself providing the house for my wife and children is there. So the money for the “house” goes all to life insurance and educational plans for my children, securing their future.

    1. Wow that is so nice of them!

  3. Good advice, Michelle! I think I’d add that when considering buying a home, if you’re planning on getting a mortgage, it’s important to know your debt-to-income ratio so that you can accurately determine what type of mortgage you’ll be approved for.

    1. Yes, that is very important as well. Thanks!

  4. Brian

    Maybe I missed it, but I did see you mention an HOA fee. This can be anywhere from $0/month to several thousand a month. Sometimes the fees get you something great like a community pool and sometimes it just seems like you are giving money away for someone to have the right to tell you that the color of the shutters on your house are wrong.

    1. Yes, I will go back and add that to the post. That can add up quickly!

  5. Robin

    I think the down payment question is probably different for everyone, but I do think you should have SOMETHING to put down. There are actually 2 kinds of loans with no down payment requirement (VA and USDA/RD) which I think is crazy!

    1. Yes, I think putting something down is always important. We put hardly nothing down on our current home and regretted it.

      1. Robin

        I’m guilty of that as well, and I regret it too! Just working on paying it down now. I just think you should be required to save up enough for at least a small down payment so that you can prepare yourself for home ownership because things go wrong with houses and you have to be prepared to shell out some dough if, say, your AC goes out.

        1. Yes, I agree. You never know if something will break. We’ve lived in our home for 5 years, and luckily nothing too expensive has happened yet, but I know others who haven’t been so lucky.

  6. Homeowners Association fee is something else to consider..among others. Just keep a very healthy emergency fund, you never know what might happen..

    1. Thanks! I added HOA to the post. I completely forgot about that.

  7. The monthly maintenance fees alone on New York apartments are higher than my rent. I won’t be buying any time soon.

    1. That is crazy! I like cheaper cost of living ๐Ÿ™‚

  8. We just bought our first home last year and had to ask ourselves a lot of those questions! Before getting married, I had saved up like crazy and we were able to put down over 50% when some left over for home improvements. But like you mentioned, we had to be disciplined in how much house we actually needed and be willing to sacrifice a few preferences. Being able to pay off the house in 2 years definitely makes it worth it, though! ๐Ÿ™‚

  9. We saved up by putting the money that we thought would cover our mortgage and home ownership expenses aside each month, as if we were spending it. This served two purposes: 1) Savings, and 2) to ensure that we were comfortable with the costs. IT worked really well.

    1. That is a GREAT way to do it. Good job!

  10. Connie @ Savvy With Saving

    In NYC, the maintenance charges are ridiculous and in some cases, as much as your mortgage payment. I’ve also come across a few properties where people were offering up above asking price and all cash. We couldn’t compete with even 30% down. Really depends on what the market is like in your area.

    1. Yeah, some markets are crazy. My friend the other day put a bid on a house and there were 26 other bids on it.

  11. Haha I was afraid my post would scare people away from homeownership. It’s all just the truth though – it’s not meant for everyone. For me though, I would much rather own than rent.

  12. Everybody should have at least 20% down payment, but should save even more than that. A lot of people don’t think about all the other expenses that come with home ownership and assume that everything will be fine because they can afford the mortgage payments.

    I won’t be buying a home anytime soon because renting is so much cheaper where I live. I would have to move to another state or a different area in order for me to buy a house.

    1. Yes, we want a down payment of around 30%. It’s going to be hard to save that over 2 years. Wish me luck! ๐Ÿ™‚

  13. Thanks for this great post! So helpful for my husband and I as we are in the early stages of researching buying a house. Thanks ๐Ÿ™‚

    1. Welcome Rae ๐Ÿ™‚

  14. Sounds like a good plan Kassandra.

  15. All great advice. Thanks Lance!

  16. I dislike the idea of a mortgage but mathematically, I’m better off investing my extra income than paying with a house for cash. I think getting a mortgage may be okay since I know I can just sell off my equities if I turn out to hate the mortgage. As long as it’s not a terribly down market, of course.

    1. Yeah, I used to be against a mortgage as well, but I think I’m better off having a mortgage at a low interest rate and investing my money instead.

  17. Yeah, I wouldn’t want a mortgage more than 25%. Right now I think we sit at around 7%.

  18. Allen @ The Daily Cent

    This is solid advice. You want home ownership to be a blessing and not a curse. If you’re house poor because 50% of your income is tied into the mortgage then you’re going to be stressed. Not fun at all. That house will not be a blessing.

    Also, a couple of people mentioned PMI. It adds up fast and needs to be calculated. To get rid of PMI you’re home-to-loan value needs to around 78% percent. Whereas if you put only 20% down as a downpayment you don’t have to worry about this.

    Oh, on top of that having your home re-appraised to get rid of PMI will cost you a few hundred dollars and if it doesn’t come back at 78% then you just threw that money away.

    So in short – put 20% down. Get a 15 year mortage (if you can). Don’t be house poor.

    1. Thanks Allen! Yep, don’t be house poor.

  19. Yeah I definitely do not want to pay PMI again. Big regret for us!

  20. If you want to feel like you are not drowning in house related payments, keep them at or below 25% of your take home pay. Put 20% down and then you don’t have to worry about PMI. Owning a home can be very rewarding. Think long term. Don’t think of it as investment. It is shelter and home. If it rises in value over the long term, that is a bonus. You should own the house, the house shouldn’t own you.

    1. I agree! I love owning a home as well ๐Ÿ™‚

  21. Newlyweds on a Budget

    We live in a high cost of living area, where a starter home (3bd 2 ba) runs at minimum 500k, so we’re shooting for a house within 500-580 and plan on putting 10% down to qualify for a standard mortgage where PMI is automatically dropped once you reach 20%. our payment (with taxes and insurance) will most likely be about 30-35% of our take home pay, but we don’t have any other debt so it’s doable.

    1. Sounds like you have a plan! I don’t know how those of you who live high cost of living areas do it. I guess I’m just too cheap after living where I currently live.

  22. I agree! I think I speak for my generation when I say a home will do nothing but tie me to an area. I need to be able to uproot at the blink of an eye!

    Jay

    1. Yes, a house can definitely tie you down ๐Ÿ™‚

  23. Adrienne

    Thanks so much for such a detailed post, Shell!

    I am going to bookmark it so I can refer back to it when we’re closer to buying a house…probably about 50 years from now ๐Ÿ™‚ LOL

    1. Haha welcome Adrienne!

  24. Amy

    Lots of great points here. I was definitely guilty of not considering the regular expenses of heating/cooling and maintaining a house when we bought ours. Winter propane bills are rough!!

    We put down less than 20%, and were stuck paying PMI for a couple of years. Fortunately, when we refinanced, our house was appraised for much more, and we no longer needed PMI. Ah…

    1. This may sound stupid, but it propane more expensive than if you were to heat your home another way? I recently saw a friend who said their average heat bill during the winter with propane is around $1,000 a month and I was blown away.

  25. Brad @ How To Save Money

    Homes are so expensive. With the values of property no longer guaranteed to keep going up, it would be interesting to revisit the buy versus rent calculation.

    1. Yes, that would be interesting. However, I think there are so many other positives of owning your home ๐Ÿ™‚

  26. Very thorough post. My plan is to buy a house late next year, but since prices here out CRAZY (SoCal), I’m hoping to put down 5-10% with enough cash left over for closing costs. Most homes around here are not HOA (thank goodness), but we have to budget in PMI, or take out a second loan which might make more sense. If I can snag a home for under $400K, I’ll be thrilled!

    1. It’s just crazy how expensive homes are there. Good luck!

  27. When we bought our current house the plan was to save up a little first, but this house was such a good deal we couldn’t pass it up. We were able to get it for just a few thousand down! It’s been tough jugging paying off debt and paying for a mortgage, but we’re chugging away.

    Ideally for our next home (we’ll be renting this one out to my parents soon and relocating) we’ll have at least 10% to put down.

    1. Yeah, that’s how our first home purchase was. It was a good deal but we still made the mistake of paying PMI ๐Ÿ™

  28. james bradly

    Hi Michelle, your post and advise is Great..after reading your post any reader never want to buy a home.. but i think atleast a home is our primary need..you can buy your home according to your requirement not to seeing after others home….

  29. Tim Yaotome

    Thanks for the heads up that one should include estimates on how much the utility bills would cost such as for sewer, water, cable, and trash. To create an accurate estimate, I would find a real estate agent first. They know the average cost of buying and maintaining a house and a house buyer can use their information to make an informed decision on getting a house.