How Much Do I Need to Save to Buy a Home?

One of the most common questions we hear from first-time buyers is, "How much do I need to save before I can buy a home?"

The answer is different for everyone. It depends on the type of loan you qualify for, the price of the home you purchase, your financial situation, and the terms of your transaction.

The good news? You may not need as much saved as you think.

You Don't Necessarily Need 20% Down

One of the biggest misconceptions about buying a home is that you need 20% down. While a larger down payment can have advantages, many loan programs allow qualified buyers to purchase with significantly less.

For example:

• Conventional loans: Some programs allow down payments as low as 3%.
• FHA loans: As little as 3.5% down for qualified borrowers.
• VA loans: Qualified veterans may be able to purchase with no down payment.
• USDA loans: Qualified buyers in eligible areas may be able to purchase with no down payment.

The loan program that makes sense for you will depend on your individual circumstances. An experienced lender can help you understand which options may be available.

For example, on a $400,000 home, a 3% down payment would be $12,000, while a 3.5% down payment would be $14,000.

The important thing is not to assume you need 20% before you start the conversation.

What About Closing Costs?

Your down payment isn't the only upfront expense to consider. Buyers may also have closing costs and prepaid expenses associated with the purchase.

These can include lender fees, appraisal, title and escrow services, prepaid taxes and insurance, and other transaction-related expenses. The actual amount varies depending on the home, loan program, and individual transaction.

Seller Concessions May Help

In some transactions, the seller may agree to contribute toward a buyer's allowable closing costs and prepaid expenses. These are often referred to as seller concessions or seller credits.

For example, rather than asking the seller to reduce the purchase price, a buyer may negotiate for the seller to contribute an agreed-upon amount toward eligible closing costs, subject to the terms of the loan and the transaction.

Whether a seller is willing to offer a concession depends on the circumstances of the sale, including the market, the property, and the strength of the offer. There are also limits on seller contributions for certain loan programs.

This is one of the reasons having an experienced real estate team and lender working together is so valuable. We can help you understand how different offer strategies may affect your overall cash needed to close.

Don't Forget About Earnest Money

Another amount buyers should understand is earnest money.

Earnest money is a deposit made when you enter into a purchase agreement to demonstrate that you are serious about buying the home. In Oregon, the amount can vary depending on the transaction.

If the purchase proceeds to closing, the earnest money is generally credited toward the buyer's purchase funds. In other words, it isn't necessarily an additional expense on top of your down payment and closing costs.

It's important to understand the terms of your particular purchase agreement and the circumstances under which earnest money may or may not be returned.

What About Homes for Heroes?

If you're a teacher, healthcare professional, firefighter, law enforcement professional, EMT, military member, or veteran, there may be additional savings available through Homes for Heroes.

As Homes for Heroes specialists, we can help you understand how those benefits may fit into your homebuying plans. We'll also connect you with an experienced lender who can help you evaluate your financing options and determine what you may qualify for.

So, How Much Should I Actually Save?

Rather than choosing an arbitrary savings number, we recommend starting with a conversation with an experienced lender.

Your lender can help you determine:

• Which loan programs you may qualify for
• How much you may need for a down payment
• Your estimated closing costs and prepaid expenses
• Whether you may qualify for additional assistance
• What monthly payment fits your budget
• How much cash you should plan to have available for the purchase

Once you understand those numbers, we can help you determine what price range and homes make sense for your goals.

You May Be Closer Than You Think

Buying a home doesn't necessarily require a huge savings account or a 20% down payment. There are different loan programs, and in some transactions, seller concessions may help with eligible closing costs.

The amount you'll need can vary significantly from one buyer to another.

If you've been thinking about buying but aren't sure whether you've saved enough, let's start with a conversation. We'll help you understand the process and connect you with an experienced lender who can help you explore your options.

At Eddie and Dawn Knippel, we help first-time buyers feel confident and informed throughout the process. Contact us today to get started.