How to Come Up With a Down Payment
Down payments on a home show lenders that you are responsible with your money. They also give lenders an added sense of security, since they are not having to issue a loan for the full value of your new home.
Being able to put a down payment on a home opens up options that help you find the perfect place to live. You may even be able to enjoy benefits such as not having to pay private mortgage insurance, if you can afford to put a large payment down on the house.
While you may understand the benefits of making a down payment, it is easy to feel overwhelmed when you think about having to save a large sum of money. Now that you are eager to buy a house, you can use these strategies to come up with the funds faster.
Determine How Much You Need to Put Down
A typical down payment is usually between 10 – 20% of the price of the home. However, paying at the higher end of these numbers provides you with the most benefits, and it allows you to stand out to more lenders.
Start by determining the average cost of a house within your desired neighborhood. Then, do the math to determine what 20% down would be for a home in your price range. You can then use this figure as a starting goal for your savings.
Explore the Different Types of Home Loans
You may be able to put a lower down payment on a house, or even avoid having to pay one completely.
There are several types of loan options that you may be eligible for that change what is expected by lenders for down payments. For instance, an FHA loan lets first-time home buyers put as little as 3.5% down on a loan.
Cut Back On Unnecessary Expenses
Most people have some fat that they can trim from their budgets. For instance, you may not really need to buy that pricey cup of coffee on the way to work when you can make a pot at home for less money. You may also have room in your cable or phone bill to trim expenses.
Keep in mind that your credit cards may be one of the biggest expenses in your budget. If possible, pay down your balances so that you have one less payment to make each month.
This not only makes your credit look better, but you can put what you used to pay toward saving for a down payment.
Check Out Your Retirement Plan
While it is usually best to leave your retirement funds untouched, you may decide that it is worth withdrawing a portion of the balance to buy your home. This may be true for you if you spend more money to rent than you would on a home mortgage payment.
Keep in mind that you may be restricted regarding how much you can take out. For instance, the IRS allows you a one-time opportunity to withdraw up to $10,000 from a traditional IRA for buying a home if you fall within their guidelines for being a first-time homeowner.
If you do choose this route, consider using the savings that you generate by no longer paying higher rent costs to replenish the fund later on.
The amount you put down on a house will vary according to several factors, such as your eligibility for government-backed homebuyer programs. Always begin with the end in mind; talk to our loan specialist about what you need to begin saving up for the house of your dreams.