For most people looking to buy a house, getting the funds to do so is their primary priority. But most banks won’t give them a loan if they haven’t saved up their house down payment. In fact, some banks try to verify that the funds exist by checking the applicant’s bank statements.
So, in order to get a mortgage loan, you have to save for a house down payment.
But saving for a house down payment is hard, especially when you factor in the other living expenses you have to take care of. But you don’t have to worry. You can have your down payment ready fast if you start saving as soon as possible.
So, how can you start? Follow this article as we explain everything you need to know about saving for a down payment.
What Is A Down Payment?
A house down payment is the initial payment a buyer makes for the purchase of a home. Mortgage lenders demand down payments to reduce financial risk as borrowers who invest their money in their homes are less likely to default, or fail to make their payments.
How Much Is A House Down Payment?
Your down payment amount depends on your credit history and the type of mortgage loan you apply for.
A conventional loan typically requires a high credit score (620+) and a 20% down payment. If you don’t have this amount, you have to pay 10% and monthly private mortgage insurance (PMI).
If you are going for government-backed loans like FHA, USDA, or VA loans, you are expected to pay 3.5%-5% in down payment. The decrease in requirement is because this loan type is for medium and low-income earners. (Check our blog post to know more about the types of mortgage loans)
With the median home price standing at $310,800 in the United States;
- The expected house down payment for a conventional loan is $62,160
- The expected house down payment for a government-backed loan is between $10,878 – $15,540.
What Are The Steps To Saving For Your House Down Payment?
1. Have a house down payment saving target
Your first step to saving for a house down payment is knowing what you want. For starters, have a target home price in mind. Talk to an agent, preferably Bost Redevelopment, to help you come up with the comps for your desired home. We are happy to do this for you for FREE!
Next, examine the types of mortgage loans available to you and choose the best loan option.
Finally, draw up a budget and determine how much money you can reasonably set aside every month. While creating your budget remember to factor in your other living expenses. You may use free tools like mint.com to make this a lot easier!
By budgeting, you get to know how long it will take you to save up the down payment. This helps you stay focused and dedicated to the saving goal. With that said, remember that a budget is a living document. So, you need to review it regularly to refine and improve it.
2. Adopt an aggressive saving habit
Now that you have a house down payment savings target, the next step is to save up for it. Depending on your financial situation, it may take many years to save up for a down payment.
It will be best if you put this money into a savings account that is dedicated solely to your down payment goal. We also suggest that you put any extra money you get into the savings account instead of spending it. Doing this can boost your savings and help you reach your goal faster.
3. Cut down on your expenses
Now, here’s the hard part: Once you’ve started saving, you have to start cutting down as many expenses as possible. However, we suggest that you don’t do this to the detriment of your well-being. Focus on only removing unnecessary costs. Some of the ways you can cut down on your expenses include:
- Avoid eating out as much as possible
- Reduce clothes buying or shop for them at discount stores
- Cut off or reduce your cable, magazines, and online subscription (such as Netflix, HBO, Disney+)
- Cancel your monthly gym subscription. (We know you rarely go there)
Doing these can save you a lot of money every month. Put this extra money into your down payment savings account monthly, and you will be amazed by the difference.
4. Take up a side job
You can boost your house down payment savinga by taking up a side business or a second job. It will be best if your side job is not as demanding as your main job. It should be something you can do with ease and at your convenience. This will help ensure you maintain your mental and physical health.
Examples of side jobs you can do are:
- Online teaching
Since the advent of the COVID-19 pandemic, there has been an increased demand for remote teachers. If you enjoy teaching, you can search for this type of online tutoring job to earn extra money.
If you own a car, you can decide to drive people to their destination for extra money (e.g., Uber.)
Getting extra money from your side hustle will help you achieve your goal faster. For instance, if you earn $200 per week from driving, that translates into $19,200 in 2 years.
5. Put your retirement plan on hold
It will be best to put your retirement saving on hold while saving for your down payment. Retirement is only worthwhile if you have a home before you hit retirement age.
For example, if you invest $700 monthly into your retirement savings, you can direct that into your down payment savings.
Also, to be on the safe side, we suggest that you don’t borrow from your retirement savings to meet up with your down payment. This can damage your long-term retirement investment and subject you to significant tax penalties.
Other Costs To Consider When Saving For Down Payment
Buyers pay 2%-5% of the home cost as a closing fee. You will be required to pay for peculiarities such as credit reports, the loan origination fee, appraisal fee, inspection fee, and more.
You also need to set some money aside for moving when you buy the home. Professional movers cost between $800- $2000, depending on how much you are moving and the distance. You can ask your friends and relatives to help you move to cut down on moving costs.
Let Bost Redevelopment Help You Buy Your Dream House!
Having an agent like Bost Redevelopment in your corner automatically increases your chances of getting the house of your dream.
Our expert team of real estate agents will provide all the support you need throughout the house buying process. We will use our network and connection to help you find the house of your dream. Lastly, we will negotiate with the seller to make sure you get a favorable deal.
Want to talk more about your options? Please leave us a message below with your contact information and let us know how we can help you.