Deciding to buy a property is an exciting time. You’re thinking about the future and making a plan for a more solid financial foundation.
Unless you have a lot of cash and you plan to pay for the house in full before you close, you’ll need a mortgage.
To get a mortgage, you’ll need a down payment.
How can you save for a down payment as you prepare to look for the perfect home? With prices higher and interest rates rising, you will need a healthy down payment to get approved for a home loan from a lender.
Start with a Budget so You Know what to Save
What do you expect to spend on a house? This is the first thing you need to determine. Understanding your budget will help you plan for a suitable down payment.
Determine how much of a house you can afford. Best practices in real estate and lending say that the amount of your income dedicated to a housing payment should not exceed 30 percent. That doesn’t mean your mortgage should be equal to 30 percent of your income; it means that you should spend no more than 30 percent of your income on all housing expenses, including your mortgage payment, property taxes, and insurance.
Setting Aside a Down Payment for your Winston-Salem Home
Now that you know how much of a house you can afford, what kind of funds do you need to save for the down payment?
Most conventional loans will require at least 20 percent of a home’s purchase price as a down payment. If you’re buying a house for $250,000, for example, your down payment will need to be around $50,000.
There are programs that will allow you to put down less than 20 percent. With an FHA loan, for example, you can put down as little as 3.5 percent as long as your credit is acceptable.
There are some things to consider, however:
- A larger down payment will typically deliver a lower interest rate for you. With interest rates on the higher side and potentially rising again, this can save you money on your mortgage in the long term.
- Larger down payments also reduce the amount of your monthly mortgage payment.
- With a 20 percent down payment, property mortgage insurance is not required, also reducing the cost of your monthly mortgage payment.
If the 20 percent down payment is out of reach, it’s worth it to consider programs that allow for a lower one. However, be aware of what that means for the long-term cost of your mortgage.
Save Smart When Building a Down Payment
There’s more to buying a house than the down payment. You’ll also need funds for the closing costs, the inspection, and other parts of the buying process.
Save money in a high-yield savings account so you’re earning interest on that money while keeping it available. Set up automatic savings so that a percentage of your paycheck is automatically deposited.
You want to make the process of saving money for your down payment as easy as possible.
Interested in more home-buying tips? Please contact us at Capstone Realty Services if you have any questions about our Winston-Salem real estate services.