Todd Dietrich

How Much Is Enough?

After becoming debt free last fall and saving up a six-month emergency fund I began to save up for my next big goal, a house. I’ve been doing homework and it seems that the more I learn the more I realize how little I know about the process. With all of the reading I’ve been doing I get the feeling I’m to the point where I really need to start working with some professionals.

As much as I know I’m going to need the help of people familiar with financing and the home buying process I don’t want to bother someone until I have enough money to actually make the purchase, otherwise I’ll just be wasting their time. Today I asked on Twitter how much people have saved before looking to buy a house. I got answers all over the map, from nothing down to the recommended 20%+ down. Most people who responded were in the 3% – 5% range, though that doesn’t seem like enough to me. So I guess what I’m getting at is, how much is enough?

If you’ve purchased a house in the past few years, how much did you save up for a down payment and closing costs before you started seriously looking? How do you feel about your decision? Is there anything you would do differently?

As I continue my home buying experience I’ll be posting with questions and lessons learned. Thanks for any and all constructive comments.

Todd

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3 responses to “How Much Is Enough?”

  1. I didn’t save much at all – 2% tops. I opted for a seller-assisted closing as well. If I knew then what I know now, I would have saved at least 10%. I started looking at houses on a whim just to see what was out there and once the ball was rolling I got caught up in the idea of being out on my own without sitting down and really evaluating my situation. Advice? Don’t jump in before you’re truly ready, but don’t overthink it too much, either. Good luck!

  2. We did 3.5% down, which is an FHA loan. The 20% is a traditional loan, but there are differences between the two: the tradloan comes with a lower interest rate and you have to pay mortgage insurance on the FHA.

    As JennC, you can lower some things by negotiating seller assist to handle closing costs. Depends on the house, the seller’s situation, and the market. Seller assist was rare during the bubble but it’s pretty common these days.

    We got seller assist and 3.5% FHA when we bought; in terms of the house price, that worked out to us having about 5% of the home value at purchase.

    While there is a rate difference, we did FHA with the goal of converting it to a traditional loan once we had 20% in equity (just streamline refinancing it); we’ll probably refinance it to a 15-year fixed so we aren’t taking on another 30 years. So you’re not locked in to the drawbacks of FHA just because you choose that at the outset.