How Much You Should Have Saved Before Buying a Home

Question

Down payments aren’t the only thing you need to save for when buying a home. Closing costs can be thousands of dollars, and you may need to foot the bill for inspections, home repairs, or even fun things, like new furniture. To make the home-buying process less stressful, it’s a good idea to keep a few months of reverses of your proposed mortgage payments.

How much money do you think is a safe amount to have before closing on a home?

Ronald Allen Barney · Answer

The primary driver of how much cash you'll need is how the home appraises versus the asking price (or current highest offer + $1k).  If the house appraises low you will need more cash.  If it appraises high you will need less cash.

A quick and dirty appraisal technique is to have your buyer agent do an "appraisal CMA" which starts like a regular CMA but only takes into account properties sold in the past 6 months (which is how appraisers do it).  Their MLS will have a CMA tool they can adjust for the 6 month time limit and get you in the ball park for where it should appraise.

If there is higher appraisal value relative to asking price, that gives you wiggle room to offer a seller a credit at closing for them to do repairs.

An easy example is, take a $300k house that appraises for $300k.  Conventional LTV is 95% so 95% of the $300k appraisal value is $285k.  Figure about 6% closing costs or $18k.  If the $300k house is turn-key you would need $33k cash at closing on a conventional owner-occupier loan.  If the home needs repairs and the seller won't budge on doing them at their own cost, in this case you can't roll it into the mortgage because it taps out at $285k, however, home repairs can also be done on credit, DIY, etc., so there are still some creative solutions for that.

Bruce Woodruff · Answer

Not even counting anything related to the RE/Escrow part of the sale, you still need a good chunk of money, like you say...moving, repairs, furniture, landscaping, new BBQ, beer fridge, Etc....

I'd allow at least $5k....