When potential home buyers (especially first-time homebuyers) think about coming up with a down payment for a house, many are concerned about the amount they need to put down. What’s even more confusing is there are contradictory opinions on how you should save and just how much you should be saving for a down payment.
Here’s a guide that utilizes some bank recommended tips in regards to the amount you should put down and a couple of suggestions for how you can effectively save up money for that down payment.
How Much to Put Down
The first step is to figure out how much you should be putting down. The widely used rule of thumb is 20% of the purchase price for the house, but you may or may not have a house in mind or even a price range. To figure out how much you can afford, contact mortgage lenders. They will give you a solid number in regards to how much you can afford, so you can begin to move forward in the home buying process. Most lenders, if you are under 45% of your income to debt ratio, will approve a mortgage, but this much can still put a hefty strain on any budget. Instead, it’s recommended that your house is less than 28% of your income per month.
On a home that is priced at $300,000, your down payment (20%) would be $60,000. That’s a large number, but it doesn’t have to be daunting.
Preparing to Save for a Down Payment
Depending on your financial situation, it may be best to save for a down payment over the course of a couple of years, instead of trying to buy a house right away. For example, if you spread saving for a down payment over the course of five years, you would need to save $12,000 per year to reach your goal of $60,000. If that’s still a little daunting, think about what is possible for you and work from there. The key is to save money comfortably, but strictly.
Ways to Save
Some ways you can save for a down payment:
-Put tax returns into savings
-Automatically transfer money into your savings account each month. This will make it more difficult for you to impulsively take money out.
-Track your monthly spending and find extraneous items to cut, such as grabbing that daily coffee at the coffee shop, eating dinners and lunches out, etc..
– Try a savings tracker system
Many online banking options offer ways for you to set goals for your savings account that can be easily monitored online. Also, ask your bank if they have specific programs to help customers save. For example, Sunset Bank and Savings has a plan where you save $5,000 in a year. If you’re looking for something else, try the 52 Week Money Challenge from A Mitten Full of Savings where you save just over $1,000 during the year.
The most important thing is consistency. If you stick to your financial goals, you’ll find yourself in your dream home in less time than you think.