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Are you dreaming of owning your own home but struggling to save for a down payment? Don’t worry, you’re not alone! Saving for a down payment can seem like a daunting task, but with a few simple tips and tricks, you can reach your goal sooner than you think. In this blog post, we’ll cover tips for both first-time homebuyers and current homeowners who are looking to save for their next home.
When many people think about the down payment amount on a house they think the amount will be around 20% of the home’s purchase price. For example, if you’re purchasing a home for $250,000, a 20% down payment would be $50,000.
While 20% has been the standard amount required in the past and is recommended down payment amount to avoid Private Mortgage Insurance (PMI) and to get a better interest rate, some lenders may accept a lower down payment, such as 10% or even 3%. However, keep in mind that a lower down payment may result in a higher monthly mortgage payment and overall interest paid over the life of the loan. It’s important to do your research and consider your budget and financial goals when determining your down payment amount.
According to a 2021 report from the National Association of Realtors, 56% of homebuyers aged 22-30 put down less than 10% on their home purchase, while only 8% put down 20% or more
Buying a home can be a smart financial decision with several advantages over renting. One of the most significant advantages is that when you buy a home, you invest in an asset that typically appreciates in value over time. This means that as your home’s value increases, you’re building equity, which can provide a source of wealth and financial stability. Homeownership also comes with tax benefits (that we will discuss in an upcoming Financial Literacy Month post).
Many first-time home buyers find coming up with the money for a down payment the hardest part of the process. In a 2021 survey by Freddie Mac, 55% of renters felt the biggest hurdle to their homeownership goals was coming up with the money for the down payment.
Here are some ideas to help you if you are trying to save up for that first home purchase:
Set a goal – Determine how much you need to save for your down payment and create a budget that includes a monthly savings plan.
Cut expenses – Look for ways to reduce your monthly expenses, such as eating out less, cutting subscription services, or downsizing your living arrangements.
Increase income – Consider taking on a part-time job, freelancing, or selling items you no longer need to boost your income.
Take advantage of assistance programs – Look for first-time homebuyer assistance programs that can help with down payment and closing costs.
Talk to a Mortgage Lender – Mortgage lenders can talk to you about down payment amounts, interest rates, and assistance programs or special deals their companies may offer. Be sure to talk to the lender about getting pre-qualified so that you know how much you can afford to purchase.
According to a 2021 report by the National Association of Realtors, the median down payment for all homebuyers was 12%, while first-time homebuyers typically put down 7%
If you’re a current homeowner looking to move and have equity in your current home, you can use that equity as some or all of your down payment. Here are a few tips to help you save for your next home:
Determine your equity – The Zahn Group can take a look at your home and provide you with a market analysis for the expected value of your home. Once you subtract your mortgage balance and closing fees, you will have an idea of how much equity you would have to roll into your next house purchase.
Consider a home equity loan – A home equity loan allows you to borrow against your home’s equity and can be used for a down payment on your next home. This would allow you to put in an offer on a home without a contingency to sell your home (something that will make your offer more attractive to a seller). Once you have that home under contract and you sell and close on your existing home, the home equity loan gets paid off with your closing proceeds.
Set up automatic savings: Set up an automatic savings plan that transfers a portion of your paycheck into a separate savings account each month. This can help you stay on track with your savings goals.
Saving for a down payment on your home requires discipline and commitment, but the reward of homeownership is worth it. Use these tips to help you reach your goal and achieve your dream of owning a home.