For many people, one of the biggest obstacles towards becoming a homeowner is saving up for the hefty down payment required to purchase the property.
Banks and mortgage lenders typically prefer a 20% down payment of a home’s purchase price. And while it’s not a requirement, there are many benefits of putting 20% down on a house, such as lower monthly payments, a smaller mortgage loan balance, and no mortgage insurance required, among others.
On this page, we offer a few helpful tips on how you can save up for a home down payment.
Look into down payment assistance programs
Most homebuyers who don’t have enough saved up for a down payment often make the mistake of accepting private mortgage insurance without seeing first whether they can apply for assistance. Most banks have programs specifically designed to help those planning to purchase a home, so remember to check some of the local banks in your area.
For low to moderate-income borrowers, the Federal Housing Administration or FHA offers loans backed by the government, available through FHA-approved lenders or banks. FHA loans offer low down payments starting at 3.5%, which is why they’re widely used by first-time, lower-income, and low-credit home buyers.
Create a clear savings goal
One of the best ways to save enough for a home down payment is to know exactly how much you need beforehand. If you’re unable to get to 20%, try to avoid putting down less than 10% — otherwise, you’ll be dealing with additional interest and fees for years.
Aim for “15 and 25,” which means a 15-year fixed-rate mortgage that does not exceed 25% of your monthly take-home income. This is the lowest cost mortgage overall, allowing you to save a significant amount of dollars in interest fees compared to most types of mortgages. Additionally, mortgage payments that do not go above 25% of your monthly earnings will give you plenty of breathing room in your budget to hit other financial goals.
Set aside savings consistently
The key to growing your savings is to develop a habit of making identical deposits at the same time each month. You can do this by transferring a set amount into your savings account every pay period, or see if there’s a way for you to directly deposit a certain amount from your paycheck into your savings account every month.
Put your money to work as you’re saving
Any money you have in a regular savings account is earning very little interest, and won’t be able to help you get to your savings goal faster.
Consider putting your down payment savings into a high-yield money market or savings account, which will help you earn more interest compared to regular savings accounts.
Another option is to look into a certificate of deposit or CD. This type of account offers limited liquidity and flexibility, but the yields and principal protection will be more substantial compared to conventional savings accounts.
Want to find the finest homes for sale in Park City? Get in touch with Team Schlopy today by calling (435) 640-5660 or send an email to email@example.com.