6 Min Read | Feb 7, 2024
By Rachel Cruze
By Rachel Cruze
So, you’re thinking about buying a house. That’s exciting! Not only is buying a home a great way to build wealth, but there’s something special about owning your house—it feels more like home.
But I’m guessing you’ve got one big question on your mind: How much money do I need to buy a house? Figuring out exactly how much you need to save can be tricky, but don’t worry! I’m going to walk you through the numbers so you can make a good, realistic savings goal that’ll help make your future home a blessing—not a curse.
How Much Money Do You Need to Buy a House?
A good number to shoot for when saving for a house is 25% of the sale price to cover your down payment, closing costs and moving expenses. (This amount is separate from saving up 3–6 months of your typical living expenses in a fully-funded emergency fund—which I recommend you do first, before saving up for a home.)
So if you’re looking to buy a $300,000 house, you should save around $75,000.
But here’s the thing about saving for a house: I can’t give you an exact answer for how much money you’ll need because the right amount for you will depend on your specific situation. For example, your savings goal will depend on how big of a home you want to buy, whether you’re a first-time home buyer, and how far you’re planning to move.
So, to make sure you know exactly how much you should save for your individual situation, let’s talk through the three biggest home-buying costs I mentioned earlier: your down payment, closing costs and moving expenses.
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How Much Money Do You Need for a Down Payment?
You should shoot for a down payment of at least 20%—that’ll keep you from having to pay for private mortgage insurance (PMI). PMI is a yearly fee that runs about 1% of your loan balance, so avoiding it will save you big-time money. Plus, a bigger down payment means smaller monthly payments and less debt.
If you’re a first-time home buyer, it’s okay to make a 5–10% down payment, but be ready to pay for PMI. And putting down any amount less than 5% isa really bad idea, because that would mean taking on way too much debt and having really high monthly payments.
No matter how much money you decide to put down, it’s super important to make sure you’re buying a house you can afford. Your monthly payment (including taxes, homeowners insurance and HOA fees) on a 15-year fixed-rate mortgage should be no more than 25% of your take-home pay.
If you spend more than that, you’ll risk not having enough money left in your budget each month to put toward other important goals—like saving for retirement. And if you use a 30-year mortgage, you’ll pay tens of thousands in extra interest and you’ll stay in debt for an extra decade and a half. Yikes!
You should also not buy a house or start saving for one if you’re already in debt, because that’s a recipe for a big-time headache. Plus, when you pay off your debt and get rid of all those monthly payments first, it won’t take you nearly as long to save up a big down payment.
See how much house you can afford with our free mortgage calculator!
Oh, and I know this might sound crazy, but the best way to buy a home is paying for it in cash. Yep, I’m serious—a 100% down payment. If you don’t believe buying a house with cash is possible, here’s a stat that may change your mind: About a quarter (26%) of the existing homes sold in June 2023 were purchased without a loan.1 Those people saved a ton on interest.
How Much Money Do You Need for Closing Costs?
The term closing costs refers to the fees you pay for services that help to officially close the deal on a house. For buyers, closing costs usually include:
- Home inspection
- Appraisal
- Origination fees
- Title insurance
- Homeowners insurance
- Taxes
If you’re wondering how much all that stuff costs, home inspections average $340 and appraisals are typically around $360.2,3 Unfortunately, everything else on the list will be a lot pricier.
When you put all your closing costs together, they’ll probably add up to about 3–4% of the home’s sale price.4 That’s how much you should be ready to pay.
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How Much Money Do You Need for Moving Expenses?
Now, if you’re able to bribe enough friends and family members with pizza to help you move all your stuff for free, then you have great friends and you can skip this part! But if not, you’ll probably be on the hook for some moving costs. Moving expenses aren’t nearly as pricey as the other costs we’ve gone over, but you also won’t be able to cover them with spare change you dug out from under your couch cushions.
The amount you pay in moving costs will depend on how you want to handle your move. If you choose to hire movers, plan to pay around $1,700.5 But if you go the DIY route by renting a moving truck and packing your own stuff, your cost will go down.
Example of How Much Money to Save for a House
Now that we’ve looked at the numbers, let’s put them all together. If you were planning to buy a $250,000 house and put 20% down so you can avoid paying PMI, here’s how much you’d need to save up:
Home Price: $250,000 | Cost | Percentage of Home Price |
Down Payment | $50,000 | 20% |
Closing Costs | $10,000 | 4% |
Moving Expenses | $1,650 | <1% |
Total Buying Costs | $61,650 | 25% |
Just keep those percentages in mind, apply them to your individual situation, and you’ll be in really good shape!
Once you figure out how much money you’ll need to save before you buy a home, you can get started on your home budget.
The Best Way to Prepare for Buying a House
Once you’ve got the right amount of money saved up and you’re finally ready to buy a house, there’s one more step you can take to make sure you’re super prepared: getting a top-notch real estate agent on your side.
Our team here at Ramsey makes it really easy for you to do just that with our RamseyTrusted program. RamseyTrusted agents are high performers in your local area who will make it their mission to help you find a home while keeping all your other money goals in mind.
Next Steps
- Write down your household’s monthly take-home pay.
- Use this tool to figure out how much house you can afford (and how to change that).
- Put together a budget and start saving
Frequently Asked Questions
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Where should I stash my down payment?
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You can stash your down payment in a simplemoney market accountorhigh-yield savings account. You won’t make tons on interest, but you won’t lose money either. But guys, don’t forget that saving a down payment is not the same as investing for retirement—you want to keep your savings liquid and in a place that’s easy to access.
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When should I start saving for a house?
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As soon as you’re debt-free with a full emergency fund of 3–6 months of your typical expenses, you’re ready to start saving for a house!
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How can I save for a house quickly?
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If you want to save for a house fast, you need to be debt-free and have an emergency fund of 3–6 months of expenses saved. With your income freed up from debt payments and an emergency fund to protect you from life’s unexpected surprises, you can save for a house much faster. Here are some other ideas to help yousave money fast.
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About the author
Rachel Cruze
Rachel Cruze is a #1New York Timesbestselling author, financial expert, and host ofThe Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simpleand Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.
