Struggling to save up for a down payment on a new home?
Saving up to buy a home can feel nearly impossible. But with a solid saving game plan, anyone can squirrel enough away for a down payment on the home of their dreams. There are many simple strategies you can use to make saving a breeze and we’ll cover those in a few.
How Much Do You Need to Save For Your Down Payment?
You’re probably familiar with the phrase: Save for a 20 percent down payment before you buy a home. Putting this much down shows that you have financial discipline and stability. Plus, it can help you get more favorable rates. While a 20 percent down payment was once a standard, many home buyers now pay 5% or less. In fact, there are some programs that allow you to put down as little as 3.5%.
Where Did The 20% Myth Come from?
The 20% myth comes from the private mortgage insurance (PMI) rule that some lenders and investors have. If you have less than 20% down at closing, you may need to pay for PMI. On the flip side, if you put 20% or more down on a home at closing, you do not have to pay the private mortgage insurance. Overall, putting 20% down will save you money over time.
What are the Benefits of a 20% Down Payment?
Lower Interest Rate
Putting 20% down vs. 3.5% down shows your lender that you're more financially stable and not a large credit risk.
Pay Less For Your Home
The larger your down payment, the smaller your loan amount will be for your mortgage. For instance, if you decide to put 20% down, you'll only pay interest on the remaining 80%.
Stand Out in a Competitive Market
The housing market is still hot, and many buyers are competing for the same home. In turn, a 20% down payment to a seller is key because you are seen as a stronger buyer then someone puts only 3.5% down.
You Won't Have to Pay Private Mortgage Insurance (PMI)
Again, when you put less than 20% down when buying a home, your lender will see your loan as having more risk. PMI helps lenders recover their investment if you're unable to pay back the loan. PMI is not required if you put 20% or more down.
3 Down Payment Game Plan Saving Strategies:
Build A Better Budget:
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You’ll want to sit down and figure out where you’re spending the most money. You may even want to download a budgeting app!
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Figure out how much you spend on necessities like rent, car payment, utilities, etc.
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Figure out how much you spend on nonessentials like entertainment, restaurants, etc.
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After categorizing your expenses, set a realistic dollar amount that you can put aside each month that you’re comfortable with. Consider these savings a non-optional expense!
Reduce Your Expenses
If you're prone to impulse shopping online, consider cutting down on those purchases! Plan to cook at home and focus on eating out less frequently!
Automate Your Savings
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Decide how much you want to save per month for your down payment.
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Contact your bank and authorize an automatic withdrawal from your primary account into a separate savings account.
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Your bank will automatically take money out of your account each month and put it into a separate account.
Bottom Line
If you want to save for a house, you’ll want to have a solid savings game plan. Figure out how much you need to put away each month. Remember, you don’t always have to put 20% down. There are other options, and we are happy to discuss them with you.
Still have some down payment questions rolling around in your head? Contact the experts at Greenway! We'll help guide you in the right direction towards your homeownership goals.
It’s no lie, the housing market has been wild. If you’re a first-time homebuyer, don’t lose faith in finding your first home. You have options. Sometimes thinking outside the box can lead you in the right direction. Here are a few things to consider:
Your Budget
Have you crunched the numbers yet to see how much you can afford? If you’re unsure of your magic number, reach out to the experts at Greenway Mortgage. We’ll look at your finances and assess what you can borrow.
Consider a Condo or a Townhouse
Condos and Townhouses make great starter homes. In fact, they’ll help you build equity to fuel a move when you’re ready!
Click here to find out if Townhouse Living or Condo Living is right for you.
Expand Your Radius
Widening your radius to include nearby neighborhoods or communities can help you find a hidden gem.
Weight Your Must-Have and Nice-To-Haves
Not finding the perfect house? Take another look at your desired features and see if any are nice-to-have instead of essential. Work with your trusted real estate agent and let them know what your wants and needs are.
Greenway Mortgage is Here To Help Guide You!
As a first-time homebuyer, there are a variety of different mortgage programs available to you. Some include:
- No Money Down FHA Loan
- NJ FHA Down Payment Assistance Program
- Conventional 97 First-Time Home Buyer Program
- The HomeReady Program
- FHA Mortgage
We also have a variety of tools and resources to help you through your home buying journey. Whether you’re just starting to save or you already have a house in mind, we can help you get your keys to your first home.
- Free First-Time Buyer Guide: Learn how to navigate the entire home buying process from pre-approval to closing and beyond!
- Home Buying Comparison Chart: Be sure to take this handy chart along with you during your home search.
Your first home is out there. Work with your real estate agent and loan officer to stay up to date on all your options and to find out what other first-time homebuyers are doing to find their dream homes.
Reach out when you’re ready to take the next step! Erin the Expert is here to help!
What Documents Do I Need for A Mortgage Pre-Approval?
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MortgageCast 002: Pre-Approvals: Erin the Expert talks about pre-approvals. What they are, why you need them and what she needs to be able to provide one that is accurate. Watch Now.
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Contact Erin The Expert: Get in touch with Erin. She'll answer any questions you may have about the mortgage process and beyond!
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Download Erin's Mobile Mortgage APP: Stayed connected and get instant access to some really helpful mortgage tools.
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Ready to Get Started? Click here to get pre-approved (takes less than 5 minutes)
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First-Time Home Buyer Resources
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It's always been a good idea to get pre-approved for your mortgage loan. In fact, it should be step #1.
Why should I be pre-approved for a mortgage loan?
In recent years, mortgage guidelines have been tightened. Documentation requirements have been expanded and followed more closely. A pre-approval gets you through the process and uncovers potential pitfalls long before you become obligated by a contract to purchase.
What advantages will I have once pre-approved?
You'll be certain about the price range that's best for you. You'll know how much cash you'll need to close, and you'll know your maximum monthly payment. Understanding your limits will help you negotiate with confidence. Plus, since sellers like a sure thing, you'll have an advantage over buyers who may not have been through the process.
How long is the pre-approval valid?
Your pre-approval is typically good for the "shelf life" of the documents used. These will include a credit report, pay stubs, bank statements, W2s, tax returns, etc. The usable life of these documents will vary, yet it's usually safe to say that your approval is good for up to three or four months. (Check with your Loan Officer). During this time, it pays to file all important financial documents so they're readily available for future updates.
What if I change my mind?
That's perfectly fine. There's no obligation to purchase a home or use a particular loan program once you've been pre-approved. In fact, pre-approval simply helps to assure you know exactly what's involved, that you are comfortable in a particular price range and that you are truly ready to make your move.
The process of purchasing a home is easier when you have financing in place before you make an offer. We're here to help get you started, and it's never too early to do exactly that. Give us a call when you’re ready. 908-489-4658.
Helpful Resources:
- Loan Programs and Products
- First-Time Home Buyer Programs
- First-Time Home Buyer
- First-time Home Buyer Guide - free eBOOK
- Educational Video Library
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There are a number of loan programs available that are suitable for first time home buyers. At Greenway Mortgage, we are proud to offer many conventional home loans that are tailored to you based on your current finances. We also offer special government loan program options to help you get into your new home.
FEDERAL HOUSING ADMINISTRATION (FHA) LOANS
These are government-insured loans from the US Department of Housing and Urban Development (HUD) that offer low down payments, making them especially attractive to first time home buyers who are looking to save where they can. The rates on these loans are often lower than conventional products and have less stringent credit requirements.
FHA loans are also often assumable, meaning you can take over the loan from the previous owner, and pass it on to someone else if you decide to move. Learn more.
VETERANS AFFAIRS (VA) LOANS
VA loans are offered by the government to veterans of the armed forces, as well as those currently on active duty, and widows or widowers of veterans. VA loans have less strict requirements and require no down payment. Learn more.
UNITED STATES DEPARTMENT OF AGRICULTURE (USDA) LOANS
For would-be home owners living in smaller towns or rural areas, USDA loans are a great option for fulfilling their dreams of buying a home. Like VA loans, they require no down payment but are subject to USDA eligibility maps. Learn more.
Check out more First-Time Home Buyer Programs Here.
