Tips to save your down payment!
What Is a Down Payment?
A down payment is the cash you bring to the closing table when buying a home. You may borrow money from the bank in the form of a home loan or mortgage, but a portion of the total cost must come directly from you. The down payment acts as an insurance of sorts for your lender. When you hand over money from your own account, you’re officially invested. By saving up for a down payment, you not only prove yourself to a lender, but you also set your own mind at ease. A sizeable down payment reduces your monthly house payment, allowing you to choose a shorter mortgage term.
How Much Should You Save for a Down Payment?
1. Determine how much you can afford each month
The rule of thumb is to spend no more than 25% of your monthly take-home pay on your mortgage payment. If you tie up too much of your budget in your monthly payment, you leave yourself unprepared to face emergencies or embrace opportunities. Write down how much money you bring home each month. Multiply this number by .25 to find your monthly mortgage amount.
2. Use your monthly mortgage payment to arrive at a total mortgage amount.
When it comes to the type of mortgage you select, we recommend a 15-year fixed rate, which is guaranteed to save you tens of thousands of dollars compared with the traditional 30-year option. Spend some time on our mortgage calculator. Input different numbers into the home value and down payment section with the goal of hitting your preferred total monthly payment.
3. Aim for between 10% and 20% for your down payment.
If you haven’t already, hone in on the percentage that works best for your family. Ideally, you’ll choose to put down 20%, which can lower your interest rate, open you up for a 15-year mortgage, and help you avoid private mortgage insurance (PMI). Multiply the total mortgage amount by the percentage you plan to put toward the purchase of a home. Now you’ve got your savings goal!