How Much Experts Say You Should Have in Your Savings Account If You Want To Purchase a Home in One Year
Written by
Angela Mae
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Gary Dudak
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It goes without saying, but buying a home is a major financial commitment. That’s why many people start saving up early — sometimes years in advance — to prepare themselves for when the time comes.
Generally speaking, the more you have saved up, the better prepared you’ll be for fees like upfront and closing costs. But if you’re thinking about purchasing a home in the next 12 months, you may need to expedite your savings and budget tactically to make it work.
It might be a challenge, but it’s entirely possible to save up the money you need to buy a home in one year. Here’s how much you should have in savings and some tips from experts on how to do it.
How Much Should You Save?
According to the Federal Reserve Bank of St. Louis, the average sales price of homes in the U.S. is $516,500. However, the cost of real estate depends on several factors, such as where you live, the current inventory and the square footage of the home. This means you could find a home at a lower — or much higher — price.
So, then, how much should you have in savings for your future home?
“A good rule of thumb is to have about 10% of the purchase price of the home that you are interested in saved up,” said Jonathan Rundlett, Regional Owner at EXIT Mid-Atlantic. “Most loan programs require a minimum of 3-5% of the purchase price as a down payment, depending on the type of loan that you are eligible for,” added Rundlett.
Here’s what a typical down payment on a home loan might cost:
- Conventional home loan: The minimum down payment depends on things like the lender and your credit score. However, if you put down less than 20%, you may need to get private mortgage insurance (PMI), which can add to your costs.
- FHA home loan: The minimum down payment for an FHA loan is between 3.5% and 10%, depending on your credit score.
- USDA and VA home loans: VA loans and USDA loans typically do not require a down payment.
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But even if you purchase a home with a low down payment, you will still be responsible for other costs.
“There will be additional closing costs as well including things like lender fees, title fees, appraisals, home inspections, etc.,” added Rundlett. You may also have to cover renovations, repairs, or other moving costs — like professional movers or new furniture.
Saving up at least 10% of the home purchase price leaves you with some extra cash for these — and other — expenses. However, other experts suggest saving up more money, just in case.
“To make a smooth home purchase, it’s recommended that individuals have at least 20% of the home’s value saved for a down payment,” said Cam Dowski, Founder at WeBuyHousesChicago.
“However, if you’re looking to buy a home within a year, you’ll need to save more aggressively. Couples or families looking to buy a home should aim to save at least 40% to 50% of the home’s value within a year.”
Kendall Meade, Certified Financial Planner at SoFi, also suggests saving as much as possible. Not only can this help you cover any unexpected expenses, but it can also keep you from draining your savings account or emergency fund.
“Emergencies can happen at any time, and an emergency fund becomes even more important when you are a homeowner as you can run into emergencies such as water leaks, appliances that have to be replaced, HVAC units, other repairs and more,” said Meade. “Without an emergency fund, an unexpected event such as these could cause you to rack up high interest rate debt.”
What Does That Look Like?
As you can see, there’s no one-size-fits-all answer when it comes to how much you should save up for your future home.
That said, here are a couple of examples of how much you might want to save before purchasing a house:
- $380,000 home with 10% down: “Assuming a 10% minimum down payment and up to 5% for closing costs, to buy a home at the median purchasing price of $380,000, you will need $57,000 saved up,” said Dr. Enoch Omololu, MSc, Personal Finance Expert and Founder of Savvy New Canadians. You’d need to set aside about $4,750 a month to save $57,000 in one year.
- $400,000 home with 3% down: Going with the 10% rule, you’d need to save up about $40,000 in a year. This includes a $12,000 down payment, closing costs, repairs, and other expenses. To save $40,000 in 12 months, you’ll need have to save as much as $3,333 a month.
Ways To Save More
Saving large amounts of money can be tricky, but here are some ways to make it easier:
- Create a personal budget. Review your income and expenses, make a budget, and cut back where you can. It’s also a good idea to set some clear savings goals to keep you on track.
- Set a strict homebuying budget. Break down your housing budget into needs and wants. Certain things — like movers or decor — are nice but might not be necessary. Others, like closing costs, are often unavoidable. Prioritize the things you need, so you don’t go over budget.
- Look into first-time buyer or down payment assistance programs. These programs can help with upfront and closing costs, making it easier to get a home. Be aware that requirements may be strict.
- Find a real estate agent. “It is important to work with an experienced real estate agent that can help negotiate the best terms of the purchase of your new home for you and assist you in selecting the best loan program for your needs,” said Rundlett.
- Create an emergency fund. “When saving for a home, ensure your emergency savings account is topped up to cover at least 3 months’ worth of expenses,” said Omololu. This will provide you with a buffer and help keep you from incurring more debt.
- Reduce high-interest debt. “Pay off any high interest rate debts that you may have (>7%),” suggested Meade. This can open up some more room in your budget and make it easier to save up.
- Automate your savings. Get a high-yield savings account and put your money in it. “Consider setting up automatic savings contributions to help you stay disciplined and make it easier to reach your savings goal,” added Dowski.
- Get a side hustle. Look into additional income streams or ask for more hours at work.
