Many people save money for their down payment over the course of several years. The larger your down payment is, the lower your loan and monthly payment will be. So, how do you know what amount is best for you?
First, determine how much you can afford each month.
One common 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.
Use your monthly mortgage payment to arrive at a total mortgage amount.
Spend some time on our mortgage calculator. Try plugging in different numbers into the home value and down payment sections with the goal of hitting your preferred total monthly payment. Make note of your options and talk them over with your spouse, a trusted friend or family member.
Aim to put down 10-20% of your purchase price.
If you haven’t already, find a percentage that works best for you and your family. Ideally, you’ll be able 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). But remember, you don’t have to have 20% for a down payment – in fact, most first-time homebuyers put down 3-5%.
What other costs should I consider when saving to purchase a home? (Getting familiar with typical homebuying costs can help you budget accordingly and avoid surprises.)
- Private mortgage insurance (PMI)
- Appraisal and inspection fees
- Closing costs
- Moving expenses
Not quite there yet?
Saving money for a house can feel difficult, but we can connect you to local experts to help you reach your down payment goals. To get started on the right path, one of the easiest things you can do is to automate your savings. Check out this article from Houselogic for other simple money saving ideas.