I'm Ready to Buy a Home!

  • 01/21/22

HOW MUCH MONEY DO I NEED TO PUT DOWN ON A MORTGAGE? 

You are ready to buy your first home- YAY! But wait, what comes next? The first step to buying a home is preparing your financing! When you buy a home, one of the biggest up-front expenses is the down payment. Not to be confused with closing costs, the down payment is the portion of the purchase price that you pay upfront at closing.

 

Ultimately, the down payment you make on your home impacts what kind of mortgage you qualify for, how much money a lender will give you, and the loan’s terms and conditions. If you have only ever rented a home, it is important to keep in mind that your monthly expenses as an owner include more than just the mortgage; there are also property taxes, insurance, and maintenance.

 

Just how much is the right amount for a down payment? Paying too little could potentially cost you in interest and fees over time but too much may deplete your savings or negatively affect your long-term financial health. The old standard was 20% down to buy property, but the majority of first-time homebuyers put 7% or less down on a home, according to a National Association of Realtors survey. All the financial gurus have differing opinions on how much you should put down, the important thing is to get educated and make the best decision for your situation. Let’s talk about options! 

 

Conventional Loans (3% Down)

Fannie Mae and Freddie Mac, government-sponsored enterprises that buy and sell most U.S. mortgages, require only 3% down for borrowers with strong credit and often require taking a homebuying class. 

 

FHA loans (3.5% down)

You can put as little as 3.5% down on FHA loans if you have a minimum credit score of 580. FHA-approved lenders also will consider borrowers with non-traditional credit histories and generally have more flexibility than most conventional loans. 

 

VA loans (0% down)

U.S. military service personnel, veterans, and their families can qualify for zero-down loans backed by the U.S. Department of Veteran Affairs. The funding fee varies depending on your military service category, loan amount and if you’ve used the program as well. 

 

USDA loans (0% down)

The U.S. Department of Agriculture guarantees loans to help make homeownership possible for low-income buyers in rural areas nationwide. These loans require no money down for qualified borrowers—as long as properties meet the USDA’s eligibility rules.

 

4 Ways to Save More for a Down Payment

#1: Start early with an automated plan 

After each pay period, deposit money into your down payment fund and watch the balance grow over time. Contributing to that fund as early and often as possible will help you stay on track!

#2: Slash your spending

If homeownership is important to you, cut out or reduce unnecessary expenses such as cable and TV service, eating out, vacations, or other non-essentials. Sit down and look at your numbers, we all have areas we could tighten up.  By spending less, you’ll save more toward your down payment and have extra money to pay down other debts!

#3: Pay off high-interest debt 

Credit cards or loans with high-interest rates can hurt your credit and are costly in the long run. Focus on paying down these accounts first, and you’ll see a snowball effect on reducing your debt. Once these accounts are paid off, you can then apply the monthly payment amounts toward your down payment savings.

#4: Pick up a side hustle

Take on a side job, ask for more shifts or overtime, it doesn’t have to be glamorous if it gets you to your goal.  If qualifying is tight get a job that has regular pay to help you boost that.  If you are purely looking for down payment look at Shipt, Uber, Doordash etc.  These offer great flexibility and no long-term commitments. 

There’s no shortcut to saving for a down payment: It takes time, discipline, and effort. But the result—purchasing a home of your own—can be rewarding, both financially and personally! These are just general guidelines for helping you get going.  Always consult a great mortgage person if you need a recommendation please reach out.  We work with some of the best in the business! 

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