How much will you need for a down payment on your first home, and what’s the best and quickest way to accumulate it?
First, how much will you need? As a very rough guideline, you’ll need at least 3.5% of the purchase price for a down payment. That would be for an FHA loan; conventional loans require at least 5% down. Of course, the more the better. You will also need roughly 3% to 4% for closing costs and prorates (which are the fees you pay to get the loan, order an appraisal, pay prorated property taxes, etc.). Sometimes your agent can help you work a deal out with the seller to pay part or all of the closing costs and prorates for you and increase the sales price by the same amount. This allows you to finance the closing costs instead of having to pay them out of pocket. So, between the down payment and closing costs, figure you will need between 3.5% and 7.5%, at least.
Check into down payment assistance. Do a Google search with the terms, down payment assistance, adding the name of your city, county or state and see what government programs are available to help you with your down payment.
Save at least the difference between your current monthly housing expenses and your anticipated housing expenses as a homeowner. Roughly estimate how much your monthly expenses will be after you buy a home, including your mortgage (principal, interest and mortgage insurance), property taxes, homeowners insurance, HOA dues, increased utilities, monthly reserves for maintenance, etc. Make sure you are saving at least the difference between this amount and what you are currently paying for your monthly expenses. Not only will this help you accumulate your down payment faster, but you will already be used to budgeting this amount every month for housing.
Sell stuff! Sell stuff on Craigs List or eBay and either let the proceeds sit in your PayPal account (open an account if you don’t already have one) or move it over to another online money market account. Not only will this help you add to your savings, it will be a constant reminder of how much of your money you have spent on “stuff!” Free yourself from the clutter of things you don’t need or want anymore before you move into your new home.
Hook up with a good real estate agent early. Many buyers don’t think they’re ready to contact a real estate agent until they have their down payment together and their financing pretty much in place. Wrong! A good agent begins his or her work with you right from the start, steering you to a good mortgage broker, educating you about what down payment assistance and other resources might be available, helping you evaluate when you will be ready to make the leap into home ownership. If you contact an agent who seems less than enthusiastic about helping you through the early stages, then you’ve learned that agent isn’t for you.
Questions? Feel free to contact me at (503) 860-2640 or pat@patflynnrealtor.com.
