Want to Buy Your First Home? Here's How Much You Need to Save

Saving enough will ensure you're in a good financial position before and after buying a home.

If you're thinking about buying your first home, you may be wondering how much money you'll need. It is, after all, a huge purchase, and there are several different costs involved. Before you go through with it, it's important to be sure that you're financially ready.

The answer varies for everyone, since it depends on things like where you live and how much of a down payment you plan to make. But you can come up with a reasonable goal based on typical home prices.

How much to save for your first home

A good guideline for wannabe home buyers is to save at least 20% of a home's purchase price. Based on the typical home price in the United States, which is currently $356,026, you'd need about $71,000.

The typical home price comes from the Zillow Home Value Index (ZHVI). It's not an average, but instead a number representing the typical home value in an area.

Home prices vary significantly from state to state. They range from $137,286 in West Virginia to $1,038,544 in Hawaii. So, depending on your state, you might need to save anywhere from about $27,000 to $208,000.

For the full state-by-state details, check out The Ascent's research on the average home price by state. You can find the typical home price in your state to help figure out how much money to save. It's also smart to check home prices in the city or neighborhood where you want to live. The more you can narrow down your search, the more accurate you can make your estimate of how much to save.

Why 20%?

The logic behind saving 20% of a home's price is that it allows you to make a reasonable down payment and still be in a solid financial position afterwards.

There are two major expenses to budget for when buying a home:

• Down payment: The part of the home's price that you pay upfront. Down payments normally range from 3.5% to 20%. If you pay at least 20%, you avoid private mortgage insurance (PMI), an extra cost added onto your mortgage.
• Closing costs: The fees and payments for finalizing a home purchase. They normally range from 3% to 5% of the purchase price.

In addition, you're going to need money to pay for moving costs. You also need an emergency fund, which should have enough money to cover at least three to six months of living expenses.

So, if you have 20% saved, you'll be able to make a down payment of at least 5% to 10%. You'll have 3% to 5% in closing costs. And the remainder should be enough to cover moving costs and a suitable emergency fund.

This isn't a strict requirement. You could buy a home with less, especially since there are mortgage lenders offering loans with zero down and zero closing costs to some borrowers. There's also the option of rolling closing costs into your mortgage. But you don't want to spread yourself too thin here. First-time home buyers who don't save enough often have trouble making ends meet.

At a minimum, try to have 20% of your future home's price in total savings. If you want even more security, aim for a 20% down payment, plus 3% to 5% for closing costs, money for a move, and an emergency fund.

Building your home savings

Saving for a home takes time. There are some things you can do to speed up the process, like finding ways to increase your income, cutting spending, and paying off any debt you have.

However, the most important part is consistency. For that reason, it's a good idea to automate your savings by setting up a recurring transfer to your savings account. This ensures that you're putting away money every month.

Now that you know how much you need to save for a home, you can check how close you are to that mark. While there's a lot that goes into the home buying process, it all becomes much easier when you have a healthy amount of cash on hand.