There are a lot of things you need to do when you are ready to buy your first home,
or upgrade to something bigger. One of those things is to have your down payment saved. This often can
be an obstacle to buying a home, sometimes needlessly so.
If you feel like getting to that 20% down payment amount is out of reach, or are not sure where
to start, here are 7 steps to get you on the right track:
1) Don’t wait
Even saving a small amount on a regular basis can really add up over time. If you are renting
right now and would like to own your own home someday, then start a special fund for that now.
Same thing goes if you know that getting into something bigger is in your future as your needs
or those of your family change.
And remember, when you start saving now, you not only benefit from the monetary savings
themselves, but the time value of money as it earns interest.
2) Budgeting and goal setting help
Make a list of all your expenses and income. Look for places that you can save money on
expenses, and then that money can go right into your savings account for the down payment. If
you need help in this area think about seeing a financial planner. Your real estate agent may be
able to refer a good one.
Figure out how much you need for your down payment and then break that into reasonable
chunks. It will help you keep going as you see yourself getting closer and closer to your goal.
3) You might not need as much as you think you do
When setting your goals, make sure you talk to a lender about how much you actually need.
You may qualify for an FHA loan, VA loan, or other loan type that can require as little as 3.5%
down. The truth is, you don’t know until you ask, so make sure you explore all options.
What you want to be careful of is that you understand the full long term impact of your loan type.
4) Lenders care about more than the down payment
While it can be tempting with your new-found goals to let other financial obligations slide in
order to put as much as possible into your savings account, also remember that lenders will
ultimately look at more than only your down payment amount. In order to qualify for a loan, and
ideally the best interest rate possible, you will need
5) Start with a pre-qualification
Since your down payment amount is based on a percentage of the total loan amount, you need
to have a good idea of your budget. While there are several components that should go into
your budget for how much house you can afford, one place to start is to get a prequalification
letter from your lender. This will help spot trouble areas in your credit, let you know what other
financial preparations you need to make, and also help set the budget for your home.
Remember that this is only a guideline. If you don’t feel comfortable with a particular monthly
payment amount, don’t borrow that much simply because the bank will let you. Use your own
best judgement because you are the one who will be making the payments.
6) Calculate all the costs into what you can afford
Another thing to consider in determining your budget is all the expenses that are not a part of
the mortgage payment. These include home insurance and property taxes among other things.
If you have always been a renter you will also want to consider the cost of repairs and home
maintenance that your landlord has been paying up to this point.
Going into your buying experience with your eyes wide open will help make sure the experience
is a good one and that you get the right home for you.
7) You may be able to get help
If you are feeling overwhelmed, don’t worry, you will get there one step at a time. In fact, you
might even qualify for local or state assistance in paying your down payment. Many programs
exist to help encourage home ownership. You can search online for programs, as your real
estate agent or lender if they know of any resources, or check with your neighborhood or
Home ownership is an important part of financial freedom and building wealth. With the right
education, support, partnerships, and planning, you can get there too!