There are several options that you may qualify for when seeking a mortgage. Lenders will, among other things such as your credit score, consider how much money you put as down payment.
The next question, of course, is, how much down payment do you need for a house? While it depends on the purchase price of the home you are buying and your loan program, it is best to strive to put down at least 20% of the property’s value. With this percentage, you attract better interest rates and may not necessarily have to pay for private mortgage insurance (PMI.)
After working out how much down payment you need for a house, it’s time to think of ways to put together that money. You can never start too early, and here is a rundown of how to save for a house down payment
Thoroughly scrutinize your expenses and identify areas with a potential for saving that you can cut back on for a while. Instead of taking two family vacations this year, you can go on one, or skip it altogether, just so there’s something to add to your savings. You may also want to consider moving to a different house in a different part of town where the rent is not as high.
Dig into what qualifies as a luxury and slash how much you spend on these things. A little cut back here, a small cut back there, and you will have saved quite a bit for your down payment.
Supplement the take-home from your 9-5 by getting a part-time job or monetizing your talents.
Assess your skillset and identify a job or more that you can do on the side to bring in the extra money. Whether it’s becoming an uber driver or taking up a part-time lecturer or tutor position, you have plenty of opportunities to explore. Again, if you are good at, say, making crafts, then you can set up a stand at your local flea market or sell online.
Fight off any hoarding inclinations you may have, round up everything you don’t need, and organize a garage sale to collect that extra coin. You can fetch a good price for antiques and other collectibles. Also, there are many sites on which you can auction your items.
If it’s the first home you are buying, then you can borrow up to a set limit on your IRA account without attracting any penalty.
You will not enjoy the same penalty exemption when you withdraw from your 401 (k) to fund your ambitions of becoming a homeowner. You can choose to roll over as much as you’d like to withdraw from your 401(K) into an IRA to avoid the penalty. Another option is to take out a loan on your 401(K) and pay interest on the borrowed amount but not penalties and taxes.
Shop around and find an institution offering attractive interest rates that align with your short-term savings plan. Let your savings work for you even as you continue adding to your down payment by putting it all in a high-yielding savings account.
Compared to a regular savings account, you’ll be able to earn more interest within a shorter time with such an account. Put in the time and diligently do your comparison shopping to find the best rates.
A friend or family member may have some money to give or loan to you. The best thing is that they will most likely not charge you any interest. It’s always wonderful when people can rally behind you and stand in your corner to help you achieve your dreams.
You have explored all options in the manual for how to save for a house down payment, and yet, are nowhere near the 20% mark you were aiming to put together. What to do? You may want to think of alternatives to conventional mortgage plans. Enter no-down and low-down mortgages.
With a no-down payment mortgage, you only need to put together the money that will go towards standard closing costs. On the other hand, you may only have to put together up to as little as 3% of the purchase value for the down payment when you take a low-down mortgage.a) FHA Mortgages
The Federal Housing Administration (FHA) will allow you to put down as little as between 3.5% and 10% of the purchase price depending on your credit score and debt-to-income ratio. The FHA provides mortgage insurance to lenders, while you will be responsible for the closing costs.b) VA Mortgages
Service people in active duty, those honorably discharged, veterans, and spouses of those who lost their lives in the line of duty are eligible for this no-money-down mortgage. The department of Veteran Affairs (VA) guarantees repayments. Apart from no down payment, you also enjoy reduced closing costs and lower interest rates.c) Piggy-Back Loans
The piggy-back loan takes on an 80/10/10 breakdown, which allows you to fund the down payment for your mortgage with a second mortgage that’s closing with the first. This loan gives you 10% of the home’s sale price, and the first mortgage will cover 80% of the price, leaving you to cover only 10% of the price.
Other mortgage options belonging in the no-down and low-down category include USDA loans, the Conventional Loan 97, and carry-back loans.
One of the greatest hurdles that you will face as you strive to become a homeowner is coming up with the down payment. With the highlighted tips on how to save for a house down payment, and exploring the various no and low-down options, you can successfully beat this hurdle, bringing you a step closer to becoming a homeowner.
Are you looking for a mortgage plan that is just right for you? Get in touch with us, and we will gladly help you with all your mortgage needs. Apply today and get started on your journey to becoming a homeowner.