To figure out how much you need to save for a down payment on a home, you first need to determine what you can realistically spend on a house. According to CNN Money, most lenders restrict your mortgage amount in order for your monthly housing payments, including property taxes and insurance, to not surpass 28% of your pre-tax monthly income. Aiming for a lower percentage such as 20% may be better if your income fluctuates. Other expenses as a homeowner to keep in mind are repairs, maintenance, utilities, and even home owner association fees if they apply.
The second step is to identify how much money you will be able to set aside each month to come up with a down payment. This will give you an idea of when you can start house shopping. A healthy down payment is about 20% of the purchase price but there are programs out there such as FHA loans where you can pay as little as 3-4% down if you have decent credit. Mortgage insurance is usually required when the down payment is less than 20%, which can cost up to 1.5% of the loan amount annually according to Bankrate.com. The Wisconsin Housing and Economic Development Authority website is a great resource to learn about the home buyer programs offered in Wisconsin.
Here are 6 tips to save up for a down payment on a house
- Eliminate the small stuff. Cutback on little indulgences such as daily coffee runs, buying lunch instead of bringing your own, and going out to eat.
- Set aside extra money. Save your bonuses from work and/or your cash rewards from your credit card.
- Shop around. Reduce expenses for cable/internet, insurance, and your cell phone.
- Sell your stuff. Use apps and websites such as LetGo, Craigslist, Ebay and even Facebook.
- Dedicate a percentage of your paycheck. Try to save at least 10% of your paycheck exclusively for your down payment on a home.
- Start a side hustle. Turn a hobby into a paycheck or pick up a part time or weekend job.
- Track your progress! Keeping your progress in front of you will help motivate you to save. Start a savings graph so you can visually see your progress.
Make your dream of being a home owner a reality! When you’re ready to start house shopping or are looking for a referral for a credible lender in the Lake Country area, we are here to help. Give us a call at 262-567-3611 or email us.