How to Save Money for a Down Payment

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When it comes to buying a house today, you will be expected to pay a down payment or percentage of the house price. You will need this money (usually 5% of the purchase price but 20% is best) before a lender will grant you a mortgage. There are several ways to do this but the best by far is to have the capital sum available in your savings.

Things you’ll need:

  • A working knowledge of your area and the kind of home you are looking for.
  • Real Estate Agents guide to property and prices.
  • A list of banks and financial institutions that offer savings facilities and mortgages.

Step 1

Have a clear picture of your financial situation, put it down on paper (income, outgoings, debts and assets).

Step 2

From your property guide select a home you like and then calculate the down payment. This is usually 20% of the house purchase price but will include hidden extras like agent’s fees, legal fees, taxes etc. A $200,000 home is likely to require a down payment of $40,000 plus extras, call it $50,000.

Step 3

From you financial picture (see step 1) Determine how much you can afford to save each month to reach this goal. If you can put $2000 into a savings plan each month it will take you just over two years to reach your goal. Ask yourself is it doable? If not you will need to make some changes.

Step 4

Start a monthly savings plan for the amount selected with a financial institution with which you feel comfortable. Your ability to successfully commit to the savings plan will give them confidence in you and thus it will possibly be easier to get the mortgage when the time comes and often on better terms.

Tips

  • If you are a first time buyer ask around if there are any federal, state or municipal loan schemes that will help you to reduce the down payment requirement.
  • Ask if the lender will reduce the size of the down payment. Note this will usually require an expensive supporting Insurance known as PMI or Private Mortgage Insurance.
  • If you rent or live with your parents, act like you are actually living in a house of your very own.  That means finding out how much you’d be paying for a mortgage, property taxes and home insurance.  Take all that extra money you’d be typically spending if you owned a home and put it into a high savings bank account.  Doing this will:
  1. Help you save for that down payment faster
  2. Help you adjust to mortgage payments, housing taxes and insurance before you even own a home. It won’t be such a financial shock once you actually own your very own house.
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Comments

One Response to “How to Save Money for a Down Payment”

  1. Home Buying 101 | Financial Learn on May 15th, 2008 4:51 pm

    [...] Saving for a Down Payment - The first thing you should plan on doing before looking at a house is start saving money. Forget about a 0 dollar down mortgage and prove to your lenders that you have not only the ability to save money, but manage your money.  A house is a huge financial responsibility, if you can’t come up with some money down, how can you expect to pay for a mortgage? [...]

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