Variables that affect how much money you should save to buy a home include your income, debt-to-income ratio, the price of the home, an appraisal, a home inspection, and closing costs.
To purchase a home within your means, spend no more than 30% of your household income on your mortgage (including principal, interest, property taxes, and homeowners’ insurance). You’ll secure the best terms for your mortgage loan by maintaining high credit scores, providing a 20% down payment, and having sufficient cash for a good faith deposit (refundable at closing), as well as covering out-of-pocket inspections, closing costs, and moving expenses.
To illustrate, let’s assume your gross annual household income is $100,000, or $8,333 a month. Your mortgage payment should be $2,333 or less, and your debt payments should be no more than $667 a month. Together, your mortgage and debt payments should total no more than 36% of your gross monthly income, or $3,000. This means you can comfortably buy a $400,000 home.
Your calculations should include the following:
Down payment: $80,000 (20%) or $12,000 (3%)
PMI: 0.22% to 2.25% of the loan balance
Out-of-pocket: Earnest money (1%), appraisal $200-$600, inspection $300-$450, closing costs 2%-5% of purchase price, moving costs $1,250 local or $4,890 if long distance, and home insurance $2,601.
You can reduce your costs by buying a less expensive home, getting a no-closing-cost mortgage, and applying to down payment assistant programs.Â
Ready to take the next step? Let our trusted and local partners at Southern First guide you through the process. Click here to learn more.
