Simple Ways to Save for Your Down Payment
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There are a lot of different ways to purchase a home. You can get creative and try owner-financing, or even buying a home at an auction. For the majority of us though, we’re still using banks and going the traditional route. If this is your plan, you’ll need some sort of down payments. Because of the housing market and the economy, mortgages have changed quite a bit over the past 30 years - homes are more expensive and that inflation hasn’t translated into higher incomes.
How Much Should You Expect to Save?
All banks and lenders will require at least a 3.5% down payment. That may seem like nothing, but for a $350,000, that’s still $12,250. That may not seem huge, but when you’re having problems saving, its enormous. Using a smaller down payment will increase the total amount of the loan, therefore increasing your payments and requiring private mortgage
insurance. So, if you’re thinking of trying to save the typical 20%, you may find yourself struggling. To put it in perspective, a 20% down payment on a $350,000 is $70,000. Yikes.
While it seems hard, it can be done - and here’s how:
- Create a “down payment” account. Contribute to this each month without touching it. Once you hit between $3-5,000, you can consider putting that money into a high yield savings account.
- It’s not very fun, but having a second job, even if it’s an additional 10 hours a week can greatly help you save. At this rate and the federal minimum wage of $7.25, you would save over $3500 before taxes.
- Consider ‘cutting the cord’ and getting rid of cable or internet expenses. Getting ahead now means you can relax later.
- Check into VIDA loans. These programs will match your savings by up to 200%, helping you get where you need to be faster than any other savings method.
First, speak with a lender to find out which typed of loans you will qualify for, and how much you should expect to pay in terms of a down payment. Next, choose a savings option, and set a goal. Once you have your down payment gathered, you're ready to buy. Good luck on your home buying journey!
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