Research the price range of the type of property you are looking for. You can do this by visiting real estate websites to see the value of homes in neighborhoods you like. Financial experts say the best place to save money for a down payment is in a high-yield savings account or money market account. NerdWallet strives to keep your information accurate and up-to-date. This information may differ from what you see when you visit a specific financial institution, service provider, or product site. All financial products, retail products and services are presented without guarantee.
And when you look at the higher interest rates that are inevitable with a smaller down payment, it’s easy to see how costs can rise. So if your budget were to struggle under the weight of these extra costs, it may initially make more sense to spend more time saving for a larger down payment. The percentages are great and all, but how can you calculate your specific savings goal for a down payment without knowing which house you’re going to buy? It’s not an exact science, but personal finance author Stefanie O’Connell Rodriguez recommends examining home prices in the desired area. Once you have an idea of the cost of a home you’re likely to buy, play around with an online mortgage calculator to estimate the monthly mortgage you can afford. “From there, you can identify a suitable price range for your home search and you can calculate how much you need to save for a down payment,” Rodriguez says.
Lower interest rates can save you thousands of dollars over the life of your loan. “It’s always good to bet 20% because the more you put in, the less you pay each month and the less you pay in interest over the life of the loan,” Runzer explains. “However, sometimes 20% is a lot to save and you may be ready to buy a house and stop spending money on rent sooner rather than later. It’s fine to also place less than 20%. Although mortgage rates have risen recently since the beginning of 2021, they still remain near a record low. Others who wait a little should take this time to find the right savings account to store their deposit fund. Call your providers and find out if there are any discounts available, or services you may or may not need that can reduce your monthly payments.
Find out how much you need to budget using a mortgage loan affordability calculator and figure out how to save the amount you need. After all, the best way to save for a home is to formulate a budget that will help you work step by step toward your goals for saving your home. When it comes to how much money you need to buy a home, there’s a lot more than the offer price to consider. In your long-term perspective of the cost of owning a home, you should consider homeowners insurance, property taxes, any HOA fees if your property is part of a partnership, and regular maintenance costs.
Before you take on more debt, such as a mortgage, it is important to free up your use of credit. Credit usage is the percentage of available credit you have open compared to what you have used. If you have $200 in debt but $1,000 available on your credit card, you’re the most expensive house only using 20 percent of your credit usage. Not only can you feel fulfilled to pay off debt, but it can also increase your credit score and prepare you for this next big purchase. There are some upfront costs associated with owning a home, mainly a down payment.
One of the first steps when considering buying a home is figuring out how much you need to save. There is no shortage of mortgage options that fit into almost any budget and credit score. Check out reputable mortgage lenders, loan programs, and down payment assistance options to find out which route is best for you. Instead of spending your money and saving what’s left of your home, start by earmarking a percentage of your income for your future home expenses and keeping them in a separate savings account.