How much should you save before buying a house?

Having a nest egg built up for a down payment is key to purchasing a home.
Having a nest egg built up for a down payment is key to purchasing a home.

If you've decided to purchase a home but you're not saving now, starting with budgeting 101 is necessary no matter your income or spending style. Hundreds of Web sites, books and classes provide budget tools for starting the process, and if you're ready for this first step, you can probably find a local organization that ties budgeting to home buying. Getting specific with spending, savings and security will only strengthen your chance of succeeding as a homeowner and you can start now, while still renting, to get ready to commit to a place of your own.

At minimum, finding a home you want to buy and starting the process will involve up-front costs for real estate agents or lawyers, mortgage applications and home inspections, to name just a few smaller charges, and at the high end, a 20 percent or more down-payment [source: Kiplinger's]. As the end of the deal nears, costs for closing on the sale, moving, and starting utilities and insurance will add up, in addition to a long trail of other charges along the way. If you're approved for a loan within your range, or debt-to-income ratio, you may be getting what seems to be a great deal for your "money," but planning for the other expenses of being a homeowner should make you reconsider taking out a loan that will leave you just eking out the payments each month.

Looking at your spending style and budget and seeing that there isn't much of a nest egg, you may still want to forge ahead and catch up later, and there are plenty of ways to do that, but at a cost. Buyers without down payments can finance them at a high or fluctuating interest rate, and they can expect to pay additional fees for mortgage insurance to protect the lender if they default [source: Kiplinger's]. Those who already have 20 percent equity in their houses might be less likely to walk away.

Getting the mortgage itself usually involves solid credit scores and a history of responsible debt repayment, but if you lack either of these, loans are still available -- but again with very high interest and fees. Taking several months or years to clean up credit and save for a down payment can save you thousands and thousands of dollars over the term of a mortgage. And even if you save for the initial home buying costs and down payment, having a cushion of savings for the unexpected costs can protect you from missing principal payments should something unexpected happen.

With 2.9 million homes foreclosed on in 2010, it's likely that many didn't foresee falling behind in the first place, and whether the economy or personal factors come to play, savings can save a house in time of need [source: RealtyTrac].

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