When you decide you want to buy a house, the idea of building funds for a down payment can seem overwhelming at first. Luckily, there are some steps you can take to figure out the amount you need and how to save accordingly.
Most lenders require certain levels of down payments to consider you for a mortgage. It often ranges from 3% of the purchase price to 25%. The larger the down payment, the more comfortable they will probably be giving you the mortgage. You should also remember it might make sense to have some extra money available after you move into your new home. Finding a good balance between a healthy down payment and money for upgrades, repairs and moving costs is especially important to discuss with your banker.
Here are some ways to build funds for the down payment:
- Set up automatic savings transfers. Most people end up saving for a couple of years to accumulate the amount needed. As simple as it sounds, one easy way to save is to enroll for an automatic savings and have a certain amount transferred from your checking account to a dedicated savings account each month.
- Consider Moving. Decreasing your living expenses while you accumulate your down payment can help you save money faster. If you are just starting out or are considering changing jobs, you may want to consider an area that has lower costs of living.
- Reduce other high interest rate debt. Paying off credit cards will take some of your savings, but you will not be paying the high rates usually found with credit cards.
- Get a second job and save your earnings. If you want to save quicker, consider getting a second job and putting your paycheck towards your down payment.
- Skip a year’s vacation. Put the money you would have spent traveling towards your down payment.
Buying a home, especially a first home, is a big financial and emotional step. If buying a home is important to you, do your financial homework. Investigate your options and determine what level of monthly mortgage payments will be affordable and comfortable. Use some discipline to save your down payment.
South State has a team of mortgage specialist available to talk you through the mortgage lending process. Contact a local banker here.