Saving to buy a home can seem like a daunting task, especially when you think you have to save 20% for the down payment. Let’s face it, unless you live in an area with a low cost of living, coming up with that type of cash can be discouraging.
But don’t worry, if you’re ready to start saving for your new home, but aren’t sure where or how to start, you’ve got options!
Research Your Home Loan Options
If saving a 20% down payment for a house seems overwhelming, the good news is that you might not need to save that much. There are many loan options that don’t require a 20% down payment. If you’re looking to go the route of government-backed loans, you might want to look at:
FHA Loan: This loan is aimed at helping first-time home buyers and requires as little as 3.5% down.
VA Loan: These loans are strictly for current and former military members. They offer a 0% down payment and don't require mortgage insurance
USDA home loan: These loans are backed by the United States Department of Agriculture, also require zero down, but are only eligible in certain rural and suburban areas and have income limits.
Fannie Mae HomeReady loan: This loan, offered by Fannie Mae, also known as the Federal National Mortgage Association, is great for multigenerational households that takes into consideration the income of everyone living in the home. It offers a down payment of as little as 3% and reduced private mortgage insurance requirements.
Freddie Mac Home Possible loan: This loan, offered by Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, offers a 3-5% down payment with reduced mortgage insurance requirements, flexible sources of funds and does not require that all borrowers live in the home.
In addition to government-backed loans, you can take out a conventional loan. These range from 3-10% down on the mortgage. Whichever product you choose, ensure you research your options thoroughly as some may take income, credit score and other factors into consideration.
Next Step - Make a Plan to Start Saving
Now that you’re familiar with your loan options, and have a better idea of the amount you need saved, let's start saving for your new home! Having a plan to save for your down payment is critical, since saving can be easier said than done.
Research the different savings accounts offered by your credit union to decide which is best for you. Savings accounts that keep your funds liquid but offer a good interest rate, like a High-Yield Money Market Account, may be a choice. And, if you’re not a natural saver - most Americans aren’t - setting up automatic savings can help you stay on track and remove any temptation!
It’s important to set a realistic goal when saving. Every dollar counts, so remain consistent with depositing in your savings account. If it’s $50 one month and $150 the next, the habit of saving will start to become second nature as you continue on your journey - and see your savings account grow.
In order to remain on track with your savings goal, you may have to adjust your current budget. We know budgeting seems like a task, but if it will help you stay on track on saving for your dream home, why not take a stab at it? An easy way to find out where you can save additional dollars is to take note of your monthly expenses and see where you can tighten up in certain places. If you realize you are stopping for coffee daily or that you’ve spent $100 on lunch the previous month, save by brewing coffee at home or packing your lunch more often! Need more help planning your budget? Check out our money management tools for more resources.
Saving on your wants, like buying that pumpkin-spiced coffee, is a no-brainer. But what about those existing loans and credit card bills? This is often an area that gets overlooked, but could end up saving you money. If you have multiple credit cards and loans at a variety of institutions, refinancing with a credit union could be an option as they often offer lower rates and terms. You may also save by consolidating credit card debt into one monthly payment.
Saving for a down payment for your future home requires discipline, but once you’re ready to make the next step, contact a mortgage consultant to get started.
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