Owning a home is the American dream. We all want to be able to come home to a place that belongs to our family.
For many, the thought of paying another month’s rent is enough to turn their stomach and with good reason. After all, who wants to continue to pay for someone else’s dream?
Wouldn’t it be nice to make a mortgage payment each month and know that you’re paying for something that you will eventually own? Of course, there’s the down payment you need to consider. Coming up with 20% of such a large purchase can feel overwhelming.
Let’s take a closer look at how to save money for your house down payment.
Consider How Much You Want to Spend on a House
You first need to consider how much you want to spend on a house. You will need to scope out the market and see how much the type of home you want is going to cost. Consider what your family actually needs. This means number of bedrooms and bathrooms, yard size, etc. While you may want a fireplace, it’s usually not a necessity. Look at websites like Realtor.com to determine what a home like that is going to cost in your desired area.
Think About What You Can Afford
Next you need to consider how much you can actually afford. This can be done by using a mortgage calculator. There are many online that will give you an estimate of how much you can expect to spend per month on your mortgage payment depending on your down payment and interest rate. With that said you also need to consider what you’ll need to spend on home insurance and any other household expenses that you may not have as a renter.
Dave Ramsey suggests that your mortgage payment not be more then 25% of your take home pay on a 15 year mortgage. It might not be completely feasible in your area, but try to limit the time frame for your mortgage as low as possible. You don't want to have a mortgage for the rest of your life!
Shoot for 20% Down
While many banks will often allow for less than a 20% down payment, your interest rates will be much lower if you can bring 20% to the table. Plus, you won't have to pay PMI (Private Mortgage Insurance), which can be pricey.
Now that you have an idea of how much you want to spend and can afford, shoot for 20% of the purchase price. For example, if your budget is up to $145,000, try to save $29,000 for your down payment.
Now it’s time to get to work. You know what your down payment will need to be. Now think about how soon you want to purchase a house.
You need to be realistic. For example, if you make $65,000 a year, and are purchasing a home up to $145,000, you could easily put back $1,000 a month and have the money for your down payment in only two and a half years. However, if you make $30,000, you would want to think about stretching that out to five years.
Get Used to Your New House Payment by Saving for Your Down Payment
Last, but not least, once you know what you’ll be paying for a house each month, take the difference between that payment and your current rent payment and set it aside for your down payment. For example, if your rent payment is $400 a month and your future mortgage payment would be $900, put $500 into a savings account each month. Do this in addition to your goal from above and you could have your house down payment much, much faster.
Believe it or not, saving for a house down payment isn’t as hard as it seems. These tips will make it much easier to come up with a healthy down payment.