Preparing for a Down Payment on a House
Before you begin the home buying process, make sure you are ready to start saving for a down payment on a house. Saving for a down payment on a house may seem overwhelming, but it doesn’t have to be. The following tips can help you start saving for a down payment for a mortgage, so you will be one step closer to owning a home.
What is a Down Payment?
A down payment is a payment of a portion of the total purchase price of a home. Down payments are typically expressed as a percentage of the purchase price. The difference between the purchase price and down payment will be the amount of your mortgage.
What is the Average Down Payment on a House?
The average down payment on a house is between 10-20% of the purchase price, which may help you gauge how much house you can afford. However, GuardHill offers mortgages with little to no down payment. Although a lower down payment may require private mortgage insurance (PMI).
The general rule of thumb is to not spend more than 25% of your monthly income on your monthly home payments. The 25% may include:
- Monthly mortgage payment
- Homeowner’s insurance
- HOA fees
How to Save for a Down Payment:
It is crucial to start early when saving for a down payment on a house. The following may help you start saving for a down payment:
- Set up a timeline and make a target goal for your savings. This is a great motivator because it helps with forward thinking and planning!
- Start paying off other debts (student loans, car loans, credit card debt, etc.).
- Save your down payment in an account you are not tempted to touch such as a savings or investment account.
- Helpful tip: Setting up automated payments into a savings or investment account can help you stay on track and remain consistent.
- Cut down on unnecessary expenses.
Even though setting aside money each month or cutting down on some unnecessary expenses may not seem substantial at the moment, the money will accumulate and eventually be significant enough for a down payment! Being consistent and disciplined during this time is imperative.
What if I Can’t Afford or Don’t Have Enough Money for a Down Payment?
Many young homeowners, especially first-time homebuyers, use a cash gift (down payment gift) to help with a down payment on a house.