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Guide

How to Save for Your First Home

Planning, creativity and commitment are all it takes in preparing to buy a home. Here's how to save for your first down payment.

Saving for a down payment on your first home may feel like an insurmountable hurdle. But, it’s entirely possible with the right strategy and planning. Here’s what you need to know.

 

 

Set a Savings Goal

 The first step in saving for your first down payment requires you know your target. Most people generally need 5% to 20% of the price of the home.
 
If you don’t know how much house you can afford, use an affordability calculator to get a rough idea of how much you need to save.
 
Then, decide when you want to buy. If you want to buy in a year and need a $20,000 down payment, you’ll need to save about $1,660 a month, assuming you are starting with zero savings.

 

Set Your Down Payment Goal High, If You Can

It may be tempting to think you can save for the lower amount, but there are significant advantages to accumulating 20% or more. The benefits to a larger down payment include:
A larger down payment means a smaller monthly mortgage payment once you buy the house.
If you put 20% or more down, you won’t need to pay Private Mortgage Insurance (PMI), which saves you money.
A larger down payment may help you qualify for a lower home loan rate and other favorable terms.
Having more cash makes you more attractive to lenders, giving you more choices for types of loans. It can also make you more attractive to home sellers.
 
While you’re saving, don’t forget you’ll also need cash for closing costs and moving expenses once you buy the house.

 

How to Reach Your Savings Goal

There’s no best way to save for a house, but small steps can help you reach your down payment goal. First, look for ways to reduce regular household expenses and funnel the difference into a savings account, money market account or certificate of deposit (CD).
 
Some people reduce the number of times they eat dinner out, start bringing their lunch to work or cut back on their Starbucks habit. Others move to a cheaper cable plan, skip a vacation or renegotiate their utility bills and student loans.
 
It’s also wise to set aside ‘found’ money, such as raises, bonuses and tax refunds. Enlist the help of friends and relatives and ask that birthday and holiday gifts be contributions to your house fund.
 
Other options include saving rebates from cash-back credit cards and automatically transferring a set amount each month from checking to savings.
 
Numerous apps can help you track your progress, keep you motivated and give you more ideas on ways to save.
 
Finally, crowdsource your efforts by asking homeowners you know how they saved for their first down payment.

 

Options for Low Down Payment Mortgages

If saving 20% seems impossible, don’t be discouraged. Get started with your savings plan and while you’re waiting explore your options for no or low down payment mortgages. Several programs exist to help first-time home buyers step onto the first rung of the property ladder.
 
Some of the most well-known programs include Fannie Mae’s 3% down program, VA loans for veterans and active duty service members, and FHA loans for seniors and others in need of affordable housing.
 
If you’re interested in rural living, the USDA offers home loans geared to improving economic well-being in the U.S. countryside. Still more programs exist to help teachers, police and firefighters buy their first home.
 
Saving for your first down payment is one of the most challenging parts of the home buying process. But if you develop a savings plan, and stick to it, you’ll be surprised at how much money you can save.
 
Contact a Cadence banker today to learn how your bank can help you purchase your first home.
 


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