How to Save For a Down Payment

If you have decided that now is the right time in life for you to purchase a home, it’s essential to make sure you’ve saved enough for a down payment. Use these tips to help set your mind to the task and create a solid plan for how to get there.

Set Your Savings Goal

If you know you’re ready to buy a home, your first step may be to get pre-approval for a mortgage. This will let you know how much of a mortgage you are pre-approved for, giving you a realistic homebuying Capital Wealth Partners budget. From there, you can determine what percentage of the home’s value you’d like to pay upfront as a down payment. For example, if you’re looking to buy a $300,000 home and want to put five percent down, your savings goal should be $15,000 to start. Remember, your savings goal will need to include both the down payment and the closing costs of the home. Expect to pay between two percent and five percent of the principal amount in your closing costs.

Focus on Your Budget

Once you have set a savings goal, you can start to work towards it. Instead of putting whatever’s leftover at the end of the month into your savings account, make your savings the first priority. Pay your house fund first before spending on anything else. Saving for a home is a lofty goal, and you need to be aggressive and dedicated in your savings strategy.

Automate Your Savings

Saving for a down payment can take some time. An easy way to stay focused on your goal is to make it automatic. If you automatically put your savings for the month in a separate account, then you do not run the risk of spending the money and getting off track. To do this, you can create a different savings account or checking account and set up an automatic transfer of funds every time you get paid. If you think of it as paying yourself first, then you will likely not even miss the money. Transferring it as soon as it hits your bank account makes it easier to pretend it was never there and to continue saving.

Consider Borrowing From Your Retirement Savings

If you’re in a crunch to reach your savings goal, you may be able to tap into your retirement savings to help cover the homebuying costs. Most 401(k) plans will allow users to borrow from their plan to buy a home without penalty. This option should be considered carefully, however, as you’d be reducing your savings for retirement. You’ll want to speak to your financial advisor before withdrawing from a retirement account, as they may be able to present alternatives that won’t take away from your retirement income.

Look For Assistance Programs

There are local and federal programs available to qualifying first-time homebuyers that help cover down payments and closing costs. Most programs have strict requirements, including income caps. If you think you may qualify, some organizations to check with include:

• The Federal Housing Administration
• The US Department of Agriculture Rural Housing Service
• The Veterans Administration

Buying a home is an exciting adventure, especially when it’s your first. Be patient and diligent when saving for a down payment, and always remember to check in with your financial advisor before making any major homebuying decisions.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation before implementing any strategy discussed here. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.