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The cost of the down payment can vary widely, depending on whether you use government-backed programs like FHA, new 3 percent down programs from Fannie Mae and Freddie Mac, or conventional loans, which generally require down payments of between 10 and 25 percent of the purchase price.
The first home is the hardest. Unlike buyers who are already homeowners, who can sell one home and use that money to buy another, first-time buyers have to start from scratch.
So how do you know what you’ll need to save each month?
The total you’ll need to save will vary based on the price of the house, the down payment required by the mortgage you plan to take out, and your projected closing costs – which you will receive from your lender in the form of a Good Faith Estimate.
However, you can calculate your own estimate by assuming you’ll need to put at least 10 percent down, and that you’ll pay about 3 percent of the purchase price in closing costs. So, if you plan to purchase a $200,000 home, you’ll need to save $26,000—which includes $20,000 for the down payment, plus $6,000 for closing costs.
Assuming you’ll buy a home in two years, you’ll need to save $1,083 per month. If you want to put down 20 percent, you’ll need to save even more.
How to find the money
Saving more than $1,000 per month is a lot of money, so you may have to make some lifestyle adjustments. A recent loanDepot study asked young adults who have recently bought a home how they saved for it. You may want to try one or more of these tactics yourself:
(Source: “Trend Of Parents Helping Millennial Children Buy First Home Is On The Rise,” March 24, 2015)
Once you find ways to save or earn more, you may want to create a special savings account just for your home buying fund. Every time you find a way to save, put into that account the amount that you are saving. Then, if you reduce a monthly payment, put the savings into your account every month, rather than leaving the savings in your checking account where you may spend it. If you earn some extra income or get some help from your parents, put it in the account.
Never make a withdrawal from the special savings account; just watch it grow until you’re ready for homeownership.
Keep in mind that down payments are just the start
Most first-time buyers don’t plan beyond the down payment, but that’s just the beginning. There are also:
There are also moving costs, repairs and upgrades you might want to make, decorating, and landscaping. You’ll also likely find the within a few months of moving in, you may need an array of tools and equipment, ranging from a lawn mower to a power drill to snow blower. It’s a lot to think about, but with some planning and strict saving, you can realize your dream of homeownership sooner than you might think.
Steve Cook is editor of Real Estate Economy Watch and covers real estate and mortgage finance for leading news sites. He is a member of the board of the National Association of Real Estate Editors and was twice named one of the 100 most influential people in real estate. Cook was vice president for public affairs for the National Association of Realtors.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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