Let's start with the basics. A downpayment is a percentage of the home you are purchasing that you will pay upfront when you close your home loan. It is a contribution to your new home and represents initial ownership.
How to Start Savings
The first step to saving is determining how much you will need to save. This will vary based on the percentage that is required, which can be from 3% to 20%. Once you have this number, you can determine your timeframe and start looking for the best strategy to start saving money.
Tips for the Saving Process
To start saving, you will need to make adjustments to your budget. This may be as simple as cutting down on a specific expense or even earning additional income. Another tip is to set up an automated savings plan. This helps remove the temptation and ability to spend this money. It is also important to consider flexibility in this savings plan so having an emergency fund can be extremely helpful for those unpredictable expenses.
Some Common Questions
Do I have to put 20% down?
Not necessarily. Some homebuyers may qualify for a lower downpayment. For example, a VA loan does not require down payments at all while an FHA would require 3.5%. It will vary based on the loan you qualify for.
If I can, should I make a larger downpayment?
Yes! Making a larger downpayment can help in the long run with interest rates. This can also help avoiding private mortgage insurance (PMI).
What is a private mortgage insurance?
Private mortgage insurance, or PMI, is required on a Conventional or FHA loan if the borrower does not put down a 20% downpayment.