The idea of a down payment can be overwhelming, especially if you’re a first-time buyer. Often, the higher your down payment, the lower your monthly payments will be.
Keep reading to learn how much you need for a down payment as well as financial tools to help you save.
Down payments are cash payments made to the seller at the onset of a deal. In order to qualify for a loan for your home, you will often need to contribute a down payment of anywhere from 3% to 20% of the sale price.
If you’re looking at a house that costs $400,000, you might be paying anywhere from $12,000 to $80,000 on a down payment.
If you pay 20%, then you can avoid paying public or private mortgage insurance (PMI), which can generally cost you 0.3–1.5% of the original loan amount.
Here’s what you can do to avoid making a large down payment:
Follow these steps to know how much home you can afford and how much to save for a down payment:
First, check your credit score. If you don’t have good credit, start building your credit with a starter credit card or credit-builder loan. Make sure you’re in good standing before you start house hunting.
The ideal credit score for securing a mortgage is 740 or higher. Research a variety of mortgage options and lenders before settling on a plan.
Experts suggest that your monthly housing fees not be more than 28% of your incoming salary—this includes your mortgage fees. If you and your spouse make $90,000 collectively, then you should not be paying more than $2,100 per month on housing fees.
When buying a house, there are a lot of hidden costs involved. You should anticipate principal, interest, taxes, insurance, loan origination fees, appraisal fees, home inspection costs as well as cost of utilities and homeowners fees.
Closing costs average anywhere from $1,700 to $2,500 depending on your state. Even the process of moving is costly. The average cost of an interstate move, for example, is $4,300.
These extra costs can really add up, so keep this in mind when budgeting for your down payment.
Now that you have a better idea of how much you need for a down payment, you can begin to start saving. Open a high yield savings account, a money market account or even a certificate of deposit (CD), which will allow you to earn interest on your savings.
Synchrony Bank offers a variety of savings accounts to meet your financial needs. We offer our customers FDIC-insured accounts up to $250,000, per depositor for each ownership category. Call 844-345-5789 to open an account or talk to a banking representative and start saving for your down payment today.
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