If you're ready to buy a home, you'll need enough down payment money to qualify for a mortgage. Find out how much you need, six tips to save faster, and the best places to stash cash for your new home.
Of course, everything is negotiable. When you make a purchase offer on a home, you can request that the seller pay some or all of your closing costs. You can also haggle with your mortgage lender not to charge certain upfront fees.
If you do negotiate with a lender to avoid fees, just make sure that it doesn’t cost you more in the long run. They can make up for fees by charging you a higher interest rate or including fees in the total amount of the loan, which means you’d end up paying interest on your closing costs.
The money for a down payment can come from your savings or gifts from family. If you’re already a homeowner, your down payment can come from the money you make when you sell your current home.
Be aware that the standards for buying a second home or an investment property are more stringent. You’re typically required to pay a much bigger down payment, such as 10% to 20%, for non-owner occupied real estate.
Private Mortgage Insurance (PMI) and Buying a Home
PMI is s a special kind of insurance that lenders typically require you to pay when you borrow more than 80% of the value of a property, even if you have excellent credit.
Speaking of putting down 20%, that’s a magic number when it comes to private mortgage insurance or PMI. PMI is s a special kind of insurance that lenders typically require you to pay when you borrow more than 80% of the value of a property, even if you have excellent credit.
PMI protects the lender if you can’t pay your mortgage and they have to foreclose. As a borrower, you don’t get any benefits from PMI, so if you can put down a minimum of 20%, you can avoid that expense altogether.
6 Tips to Save for Down Payment When Buying a Home
Before I cover some of the best places to put your down payment money, here are some tips to help you save as quickly as possible:
Savings Tip #1: Automate it
When you make saving more convenient you’re more likely to do it. So make automation your friend by having a portion of your paycheck deposited into a separate savings account just for your down payment.
You might choose a fixed amount, like $200 per month. Or you can specify a percentage of each paycheck so you save more when you get a raise or bonus.
Saving Tip #2: Save all raises and bonuses
For a set period of time, consider saving all extra income you receive from work.
For instance, if you get a 3% raise, increase your down payment savings percentage by at least that amount. Or if you get quarterly or annual bonuses, transfer the full amounts to savings.