How Much Do I Really Need to Save for a Down Payment?
Are you saving up for a new home? If so, you’ve probably given a lot of thought to how much you’ll need for a down payment.
After all, gone are the days when anyone could buy a home with just a promise and signature. No-documentation loans allowed virtually anyone to buy a house with just a simple credit check and no money down. But after the mortgage meltdown, this all changed dramatically. Lenders tightened their guidelines and down payments were back.
And for now, it seems they’re here to stay.
But how much do you actually need? Do you always have to pay 20% down?
The answer might surprise you! There are actually many ways to buy a home with less than 20% down payment.
Here are a few options to consider:
0% Down: There are still two loan programs that allow you to buy a home for no down payment—the VA loan and the USDA loan.
The VA loan requires the borrower to be a qualified service person or veteran. The USDA loan, on the other hand, is for certain areas under the Department of Agriculture.
Wondering if the VA loan is right for you? Check out this recent article we wrote on that topic!
5% Down: Conventional loans with loan limits can allow you to buy a home with as little as 5% down. These loans do have PMI (private mortgage insurance), which can be eliminated when the loan amount falls below the 20% threshold.
3.5 % Down: FHA offers first-time home buyers a good home loan for only 3.5% down payment. Again, these loans have loan limits and PMI, but they offer a faster entry into the housing market.
Buying a home doesn’t always mean saving up for a 20% down payment. If you’re considering buying a new home, be sure to talk to your lender about your options.
Tips for Saving for Your Down Payment Fast
Whether you do want to put 20% down or you opt for a lower amount, you still need to save thousands of dollars.
How do you do that when you have a family to feed or student loans to pay off or a million other expenses to pay?
We have a few ideas:
Cut out unnecessary subscriptions and expenses.
Go through your list of expenses and look for anything you don’t absolutely need. Do you really need those subscriptions to Netflix Premium, Xbox Live, or Amazon Prime? That’s up to you to decide.
Take another look at your expenses and ask yourself if there are cheaper substitutes for the things you’re buying. Can you forego the daily Starbucks run in favor of brewing a pot at home? Could you cut back on the snacks and name brands while grocery shopping?
Set your credit card payments to automatic.
Have you ever forgotten to pay your monthly credit card bill? You probably didn’t love the fee they tacked on afterward!
Save yourself the headache of remembering and those extra dollars by paying your credit card (or cards) automatically.
Tuck away unexpected income.
This includes birthday and Christmas money, tax refunds, and stimulus checks from the government. Unless you need to put that money toward more urgent needs, I encourage you to save it and put it toward your new home.
Sell items you don’t need anymore.
Is your workplace close to home or to a bus stop? Consider selling it! The cost of daily public transportation is still cheaper than the cost of owning and maintaining a car.
What about that armchair you never use (and that doesn’t match your décor anyway)? Take a look around your home and ask yourself what you don’t want anymore. This is a great idea if you’ve been wanting to declutter for a while!
These are just a few of the many ways to save up for a down payment on your new home.
Ready to start searching? Contact us and let us know what kind of home you’re looking for. We’d love to help you achieve your homeowner dreams!