In Saving

Before purchasing my first home last year, the idea of saving for a down payment induced panic. Twenty percent down on even a moderately priced home seemed like a savings goal a decade in the making. It wasn’t until I explored my options and determined how much to save each month that I began to see a light at the end of the tunnel.

If you have a dream of becoming a homeowner, it’s time to break down the numbers into something a little easier to digest.

SPRING CLEAN YOUR FINANCES


Take the FREE 10-day challenge. Strut into summer knowing your finances are on track.

How much do you plan to spend on a home?

The size of your down payment depends in large part on the home purchase price. If you don’t already have a price point in mind, begin by looking at your household monthly income minus your monthly debt obligations. Next, consider the monthly costs associated with home ownership outside of a mortgage payment. This might include private mortgage insurance (if you put less than 20 percent down), property taxes, HOA dues, maintenance costs and homeowner’s insurance.

Get all you need to know about potential costs in the Ultimate Homebuyer’s Guide.

Once you have a full understanding of what your costs may be and what your current finances can handle, you’ll be able to better determine the price range you’ll be looking for. A mortgage calculator can help.

How large will your down payment be?

After speaking with a mortgage broker about the specifics of my situation, it became clear that putting 20 percent down wasn’t actually the best option for me. Based on the amount of time I planned to stay in the home, it made more sense to go with a loan that only required only 3.5 percent down.

While 20 percent is the standard, there are several different loan options worth exploring.

VA Loans
  • Who qualifies: Members of the military (veterans, active duty, reservists) and spouses, under certain circumstances
  • Down payment: 0 percent
USDA Loans
  • Who qualifies: Low to moderate homebuyers, and the home must meet certain cost and location requirements
  • Down payment: None
Conventional Loans
  • Who qualifies: Varies depending on the lender and loan program
  • Down payment: Starts at 3 percent
FHA Loans
  • Who qualifies: Homebuyers with a credit score of at least 580
  • Down payment: 3.5 percent

Once you have an idea of the types of loans you might qualify for, you can better decide your target down payment percentage.

What’s your target date?

Arriving at a savings number requires one more important piece of information: your target home purchase date. There are a few different things you might consider:

  • Your living situation: Do you have a lease that’s ending soon? Or are you able to stay put for as long as you need?
  • Your savings: Have you saved any money that can be used for a down payment? Or are you starting from scratch?
  • Your spending: Do you have enough breathing room in your budget to allow for saving? Or do adjustments need to be made before saving is possible?

With a target timeline in mind, it’s time to move on to the final step.

What do you need to save each month?

Based on the target home purchase price and the percentage you plan to put towards a down payment, you now have the total you will need to save. Divide that number by the number of months before your target purchase date, and you’ve arrived at how much you need to save each month to reach your goal.

It’s possible this number is just a starting point and will require further tweaking of the amount you spend on a home or the timeframe in which you decide to buy. Or, the number you arrive at might indicate your current spending needs to be scaled back in certain ways. But seeing that a monster goal like a down payment can be reached by understanding exactly how much to save each month offers something important: empowerment.

Suddenly homeownership doesn’t seem like such an impossible goal, does it?


bpf-MKTG-753