Housing Market 2024: This ‘Magic Number’ Tells You When You Have Enough Savings To Buy a Home
Written by
Vance Cariaga
Edited by
Nicholas Morine
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Arriving at a “magic” number when you’re saving to buy a home is a tricky business because so many variables are involved. You have to consider the price of the house, the amount you want to put down, the current mortgage rate, and how much you’ll pay in closing costs, taxes and other fees.
The first thing you should do is review your finances and determine how much you can spend upfront on your home purchase. The Consumer Finance Protection Bureau (CFPB) recommends taking the following steps:
- Gather your bank and investment statements and add up all funds available for a home purchase.
- Decide how much you want to set aside for other savings goals as well as moving costs and any home renovations you might need. Subtract these amounts from the total above.
- Subtract an additional amount to set aside for an emergency fund, which should be enough to cover at least three to six months’ worth of expenses.
- The final number is your maximum available cash for closing. This is how much you can contribute out of pocket at the time you close on your loan.
How Expensive Are Closing Costs?
Keep in mind that you’ll need to factor in closing costs in addition to the down payment. The amount you’ll need for closing costs depends on the price of the home, your down payment, your lender costs, the type of loan, the location and other factors. A good ballpark figure is that your closing costs will range from roughly 2% to 5% of the home purchase price.
As for the down payment — although the norm used to be 20% of the purchase price, that’s no longer the case. The typical down payment for first-time buyers was 8% as of mid-2023, according to data from the National Association of Realtors. The typical down payment for repeat buyers was 19%. Both of those percentages were the highest since at least 2005. A separate analysis from Houzeo found that the average down payment for all buyers was 14.5% during the 2023 third quarter.
In a 2022 blog, Oregon-based Hayden Homes recommended considering these factors when coming up with your magic number:
- Buying timeline. The longer you wait, the more time you’ll have to save for a bigger down payment.
- Loan amount: This will partly depend on how big a down payment you can make.
- Your financial standing: As Hayden Homes noted, if you have a strong financial history, you might get by with a smaller down payment.
- Mortgage type: Down payment requirements vary depending on the type of mortgage loan you have. Options include conventional, fixed-rate and variable-rate mortgages as well as FHA loans and jumbo loans.
All of these factors will play a part in your “magic number” for saving for a home. If it’s any help, the average down payment amount for middle-tier homes — those priced between 75% and 125% of the median sales price — was $56,371 in December 2023, according to CoreLogic. That might be as good a magic number as any to shoot for.
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