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How To Save For A Downpayment on Your First Home

Paying high rent and making student loan payments can make saving for a home seem nearly impossible.  For some, it may well be. However, for most it’s a matter of buckling down and setting aside money rather than spend it. The biggest obstacle for most young homebuyers to overcome is the down payment. Here, we give you the run down on what it is, how to prepare for it, and where to find the extra cash.

What exactly is a down payment?

Basically, the down payment is the money from your savings that you give to the home’s seller. Your mortgage will pay the rest of the price. The d.p. is usually expressed as a percentage – on a $100,000 , a $13,000 down payment would be 13 percent.

The best way to approach a down payment is to set aside small initial amounts. Just set something aside into a savings account each month. No matter how large or small, you can always build on it.

What's the best way to save?

A good way to set a monthly savings goal is to subtract your current rent from your estimated mortgage payment, including principal, interest, property tax, homeowner insurance and mortgage insurance. Save the difference.

This is beneficial in two ways. First, you’re building your savings. Second, you’re getting a feel for your budget as a homeowner. If you’re not able to meet hat savings target, it might be time to rethink your housing budget. It’s important to stay realistic to make your dream of buying a home a goal you can attain.

Savings doesn’t have to be all about cutting down and budgeting – it’s about sacrificing little things you want now for something big you want later. Cliché as it may sound, it helps to keep visual reminders of your goal around. Keep pictures of houses you like to remind yourself on a daily basis why you’re making the trade off.

Where do I find the extra money to save?

If you’re paying 30 percent or more of your income for rent, consider moving into a cheaper apartment so you can set aside more money every month to buy a home.

To find more savings, you literally have to scrutinize every expense and get rid of anything unnecessary right down to the last Starbucks double latte.  Do you need to spent $300 a month on a gym membership? Could it help to do meal prep every week to avoid eating out as much?

When should is the right time to buy?

Home prices or interest rates could rise while you’re accumulating savings – making your target amount rise as well. A common myth is the longer you wait, the harder it will be to purchase something due to rising prices. But this is not always the case and patience and research go a long way.

There’s a lot of pressure around “is this the right time to buy?” Ask yourself, are you willing to pay a slightly higher price and slightly higher rate to feel extra confident that you’re on a firm financial foundation? In the end, these questions are all subjective from person to person. So do your research, talk to people and get informed!

Stilll confused? Don't worry, connect with one of our agents to help answer any questions.

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