Hello and advice for saving money to buy a home

razdazzle · November 2011

Hi all - I am new to this board and relatively new to the nest. I got married in August 2010 in the DC area. My husband and I are hoping to relocate to a less expensive area in a year or two - probably Baltimore area to stay close to family. We have about $13,000 in savings right now.

We have started looking a little to make sure there are nice places that we may be able to afford in two years or so. What do we realistically need to be able to buy a house for 300-350K and how much should we be saving per month? Right now we are trying to put between $500-$800 into savings and $250 into a seperate retirement account. Some months it is easier than others to put $800 into savings.

Thanks in advance!

Justinlove · November 2011

Well, ideally you would want to have 20% for a down payment, another 6+ months worth of expenses in your emergency fund, while still maximizing your retirement funding. Your monthly housing expenses (mortgage, insurance, taxes, utilities) should be in the 25-30% of your TAKE home pay range.

Now, you can sit down and figure out how much you would need to be saving.

Sisugal · November 2011

You might want to post your budget on the Money Matters board and hang out there - they give good advice and can help you find more that you can save.

You want to keep your housing costs to 25-28% of your TAKEHOME pay 30-35% if in a HCOL area (less if you have alot of debt). Housing costs = mortgage+PMI+taxes+insurance+utilities+HOA dues/fees. Keep your total debt (the previous housing + other debt )to no more than 40-45% of take home pay.

Pay off your consumer debt - at least the credit cards. Save for a downpayment, moving costs, start up utility deposits, repair & renovation costs, decorating and furniture, and all the miscellaneous stuff you need with a house (ladders, lawn mower, tools, hoses and hose caddy etc) ---AND still have an emergency fund of 6 months EXPENSES. You need an emergency fund with a house - stuff happens, even in a brand new house, not to mention illness, job loss etc.

jacksjerseygirl · November 2011

Previous advice ... although exact % required down will depend on several factors (your over-all financial profile; bank requirement; loan requirement).

Generally, unless you have a special type of loan or your financial profile allows it without penalty, banks are looking for 15-20% down. So at 300-350K - you are looking to have 60-70K in savings for down payment + 6 months of living expenses (everything from electric bill to groceries to car payment to gas to mortgage and related expenses ... so make sure you know what that number is monthly with the new mortgage/related).

With 13K in savings now and a plan to buy in 2 years ... it doesn't seem as if the numbers will add up unless there is something else in the equation. Good luck!

razdazzle · November 2011

Thank you for all of the honest advice! It does look like 2 years probably won't happen. In a year or so I will be done paying off my car so that will help with putting more into savings. I'm going to check out the money matters board and also refigure what we should be saving based on what some of you suggested.

Koneko · November 2011

Since you're currently paying a lot in rent (I figure, it being DC and you wanting to move away from the HCOL area), would it be at all feasible for you to move to Baltimore sooner than that and continue to rent, but at the reduced rental rates of the area? That way, you're saving more toward your potential house, and of course you'll want to spend some time in the area before buying so that you can narrow down your neighborhoods and check out lots of houses in person. I'm sure that your jobs are also keeping you from moving immediately, but if it's your ultimate plan, then I would think that working on moving to the LCOL area with similar salaries will allow you to buy there faster than saving while dealing with DC.

DownToEarthGirl · November 2011

I think it's smart to talk with a mortgage broker right now also. While it's ideal to have 15-20% down on a house, a mortgage broker will be able to look at your financials right now and give you an estimate as to what you could be preapproved for and how it might increase (more in savings/retirement, better credit score, etc.). One thing to keep in mind is that I was recently offered the same rate on a mortgage if I put 5%-19% down, but it only dropped by a 1/2% if I put 20%+ down. However, I would need mortgage insurance at <20% down, so that increases your monthly payment a little. These are good things to know since the rates are so low and leaving money for retirement/emergency might be a better idea than stretching to reach 20% down right away.

razdazzle · November 2011

Koneko - jobs are keeping us here but I think you are right that moving sooner would help reduce rent and put more into savings. Our current plan is to start looking for a new job in the spring and move by next Fall. We'd probably rent for at least a year before trying to buy.

Down to Earth Girl - I didn't realize/think about speaking with a mortgage broker now - but this might be a good idea so that we can estimate what we would need down the road. Also you brought up good points about looking into mortgage rates.

Hello and advice for saving money to buy a home

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