Ideally, youll want to save a down payment of at least 20%. With your income freed from debt payments and an emergency fund to protect you from lifes unexpected surprises, you can save for a house much faster. Whatever you do, never buy a house with a monthly payment thats more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage (which has the overall lowest total cost). Remember, your down payment makes a big impact on how much home you can afford. What a great question! Thats rightits time to say goodbye to your credit card balance, car payments, student loans and everything else you owe money for. A home is the biggest purchase youll ever make, and you need a pro on your side. Ouch. Renting an apartment is lower maintenance and more flexible, but you may have to deal with rent increases, loud neighbors or a grumpy landlord. All Rights Reserved. To be clear, that 25% limit includes principal, interest, property taxes, home insurance and private mortgage insurance (PMI)and dont forget to take homeowners association (HOA) fees into consideration. Dave Ramsey says you should save 3% to 4% of your home's cost for closing costs. You dont want any surprises when it comes to saving for a down payment. 2023 Lampo Licensing, LLC. Cheers to that! We'll connect you with investment pros we trust: https://bit.ly/3hc6PgtVisit the Dave Ramsey. Anything more than that and you risk being house poor. Renting is not a waste of money. What Is Private Mortgage Insurance (PMI) and How Does It Work? Rather, he's a huge advocate of making a 100% down payment -- and avoiding a mortgage altogether. A good agent will help you set the right expectations when shopping for a home in your price rangethey may even be able to find you a home for sale that other buyers dont know about. For example, if youre purchasing a $200,000 home, multiply that by 4% and youll get an estimated closing cost of $8,000. But does that mean home prices will drop considerably? See how much house you can afford with our free mortgage calculator! Prepaid property taxes and mortgage insurance, Boxes, bubble wrap and other moving supplies, Appliances that arent included in your home purchase, Any pre-move-in upgrades like painting, new furniture and closet organization. That usually only happens if the seller is in a hurry to move or if its an alternative to repairing something that comes up during the home inspection. While we dont recommend renting as a permanent way of life, there are a few times when its better to rent than buy. Lets start with the money youre already bringing in every month. Add that amount to your 20% down payment ($40,000), and the total cash youll need to purchase your home is $48,000. Now, Im always going to tell you the best way to buy a home is with 100% cash. Dont forget: Buying a house also means youll be moving! Lets do a little math and see. That means youll want to interview a few agents before you hire one.