Saving for a home can be a daunting task. With interest rates up, putting more money down is a huge advantage to
keep you monthly payments down. Putting
a minimum of 20% down is a good idea because it will force you to save more
before pulling the trigger on a purchase. Plus by putting 20% down you avoid paying the PMI (private mortgage
insurance) required for smaller down payments. Far too often first time buyers stretch themselves thin by making a
lower down payment and not understanding the effect of these extra costs.
If you have ever watched these HGTV home fix-it shows you will realize that
when you buy a home you will crave going to Home Depot to do renovations or buy
furniture. Because of this be sure to
save about 10% of the home's value above what you will use as a down payment,
so you can do the renovations.
As you are saving, make sure to be safe with your savings. Often people will invest their savings in the
stock market for growth and that is not a wise place to put down payment
money. Look for safer vehicles and
investments. The last thing you want to
have is a 20% drop in your account and delay your purchase.
When planning your budget for how much monthly payment you can afford, add
1% to cover the unexpected. It could be
the roof, water heater, or A/C, but invariably there will be year to year
blowups that will cost you money from savings.
To ultimately save for the down payment, it all comes down to budget. If you truly want to buy that first home,
what will you sacrifice? Eating out
less, no lavish vacations, or fewer large purchases? The key to achieving your goal is to
immediately put the money into savings each month. Otherwise you'll spend it on something other
than the down payment.
