Buying a Home: Saving Up for a Down Payment

One of the goals many people have, whether it is for this year or for some point in the future, is to buy a home. However, many neglect to save up for a down payment. This is because a couple of years ago, you could buy a home without a down payment. The game has changed, though, and you need to be aware that a down payment is a necessity in the current climate. (In fact, such common sense should never have been abandoned in the first place.)

At any rate, it is wise to plan ahead to save up for a down payment. You should figure out your price range for a home, and then decide on your down payment size. You will need at least 3.5% if you are getting a loan through the FHA. If you want a different loan, though, you may need between 5% and 10% of your home’s purchase price. A mortgage lender or broker can help guide you in some cases.

This means that you will have to save up thousands of dollars. If you are buying a home for $180,000, you will need $6,300 if you go with the FHA loan. For a 10% down payment, it will require $18,000 ($9,000 for 5% down). You can see how planning may be required.

You should save up using some sort of high yield savings account so that you get a little extra in terms of interest. Figure out where you may have to cut back in order to save up a monthly amount of money, depending on your time frame. For instance, if you want to save up a 5% down payment in a year, using our $9,000 scenario, you will need to set aside $750 a month. This can also serve as a good gauge of whether or not you are ready to take on the costs of home ownership.

In the end, buying a home is a big financial commitment. You really should be ready for it.