NBSB’s Expert Tips for Saving For a Down Payment
Homeownership is a great goal and if you’re willing to put in the savings leg work, a very achievable one.
While the traditional recommended amount for a down payment is 20% of the total cost of the home’s value, North Brookfield Savings Bank has a minimum 3% low down payment option to help those who have limited savings when buying a home. This is a great option for those who can afford a higher purchase price based off their current income situation but their current savings may not reflect the ability for a large down payment.
However, starting at 20% helps you to avoid paying private mortgage insurance (PMI) that is typical if you finance. Ultimately, PMI makes a lower down payment less risky for lenders but increases a buyer’s monthly mortgage cost, as it can range as high as 1% of your total loan value per month. So on a $200,000 mortgage the PMI could cost you an additional $200 a month. Buyers are required to pay this insurance until 20% of the total value of the home has been paid. Making a higher down payment typically means you’ll spend less money in the long run.
The amount you need to save for a down payment varies greatly by lender and your credit qualifications. To better understand your own situation, reach out to a North Brookfield Savings Bank Mortgage Lender. They’ll be able to pull your true credit score, which can be different than the one you see on consumer reports, and based on their experience and knowledge they’ll be able to tell you how much you’ll likely be expected to have for a down payment.
Knowing how much you need to save is always the best place to start and utilizing some of these tips can help you start growing your savings faster.
Open a savings account just for your down payment
Creating a savings account with no linking debit cards or checkbooks will not only help you better visualize your savings but it will help make sure that the money you’ve put in your account stays there. Transferring a certain percentage, even a small one, of all incoming money should be your goal. Check out the great options for savings accounts NBSB has to offer here.
Go cash only
Relying only on cash to make purchases can help make you more conscious of your everyday spending. With a credit card and even debit cards it’s dangerously easy to overspend. Make it easier by calculating the cost of what you need before you go on important shopping trips and limiting yourself to only carrying around so much everyday spending. With cash you simply can’t spend what you don’t have. Helping keep more of your money in your bank accounts.
Set smaller savings goals
A large savings goal can be daunting to tackle and disheartening when it seems like you’re only making a small dent. Dividing up your overall goal into easier to manage pieces can help you better see the progress you’re making. Whether it’s by month or week, $833 or $193 over 2 years seems far more achievable than $20,000 does.
Make a budget
Regardless of whether you’re saving for a down payment or not, creating a budget is one of the best financial things you can do. Setting a budget that takes into account all of your monthly payments can help you make smart choices about how you spend the leftovers. Including how much you can afford to put into your down payment savings.
Save any extra income
Got a bonus from work, cash gift for your birthday, or a tax return deposit? Set it aside and add it to your down payment savings. You can’t miss what you never had to spend.
Just because you’re saving for a down payment doesn’t mean you have to stop spending money on non-necessities completely. It does mean that you’ll need to put more thought than usual behind your purchasing. For any purchase that isn’t a necessity, give yourself 24 hours to think about it and decide if it’s worth it. If it’s a really big purchase, give yourself a week.
Make strict shopping lists
Stores try hard to make you buy more than you intended to. Making a specific list of the things you need to buy before you go shopping will help you from overspending on non-necessities. Shopping lists aren’t just for the grocery store anymore.
Lower some expenses
This is a good time to review your expenses and to see if there are any you can decrease or eliminate entirely. The monthly amounts you are not spending anymore can be put into your down payment savings account.
Research home buyer programs
Doing your research can pay off. A lot of states and financial institutions operate programs for homebuyers. Some offer housing discounts, while others provide down payment loans or grants.
As always, if you have any questions, or need to go over your down payment goals, you can contact a North Brookfield Savings Bank Mortgage Lender for assistance.
We’re here to help.