Often when people start saving they want to know the end goal; a down payment is no exception. See below for some tips on determining how much when saving for a down payment.
Figure out your time line.
When do you want to buy this home? Within the next year or five to ten down the road? If it is within the next year, you may want to go ahead and find out how much you prequalify for; this will give you a feel for the maximum amount the lender can offer you towards the purchase of your home.
Figure out your home budget.
This is also a good time to sit back and consider how much you want to spend on a home. Just because you were prequalified for a certain amount, doesn’t mean you have to spend that amount on a house. Inform your Mortgage Banker of your monthly housing budget and they can give you an idea of the amount to spend on the home. If you are looking to purchase a home in a few years you may not take that first step of getting prequalified; however you can still get an idea of how much your home will cost. Start looking around online or speak with a Realtor about what you would want in a house, when it is time to buy. Then from there, ask about the price range of that home. Even if you won’t be purchasing for a few years, you can have a starting point; keep in mind, as the housing market changes so will the house prices.
Calculate a down payment.
While there are loan options for zero down payment, there are strict guidelines for who qualifies for them.You can read more about no down payment options here. For most home buyers, they will have to put some money down on the purchase of their home; a down payment requirement could start at 3% and go up from there to 20% down. So, in calculating the amount when saving for a down payment start with 3% of your home budget as a base. For example, if your home budget is $150,000 and were looking to save for a down payment; a minimum goal of $4,500 is a great place to start. Of course, you can continue to save from there. Any money you can put down towards the house will be less that you have to borrow; learn more about the impact that your down payment has on your mortgage by clicking here.