How Much Money Should I Save Before Buying a House?
Let’s start with the bad news: Houses are outrageously expensive. So the generic answer of how much money you need is “a lot.” But you already knew that.
How much do you actually need to save before buying a house?
I’m going to make the case for 26% of the purchase price plus about $10,000. That might sound unreasonable, but I’m going to defend it below. It’s also important to remember that home ownership is expensive and that there’s nothing wrong with renting.
The Case For a 20% Down Payment
You don’t need to put 20% down these days. In many cases it’s possible to get a loan by putting just 5% down (or less)!
Let’s talk about some of the reasons why 20% is still a good number to shoot for.
Private Mortgage Insurance (PMI)
When you have less than 20% equity in your home, your lender will force you to pay for something called private mortgage insurance, or PMI.
What is PMI? It’s protection for the bank against the risk that you default on your mortgage.
Think for a second about what a lousy deal that is. Most insurance is something you buy for yourself to protect against something bad happening. And most of the…
