Ready To Buy a Home? Follow These Tips To Save for a Down Payment on a House

There comes a time in everyone’s life when renting doesn’t quite cut it anymore. Whether you want to start a family or simply choose your paint colors and fixtures, owning a home means you get to settle down and call the shots. And most importantly, it’s an investment in your financial future instead of someone else’s. As with any large purchase, there are some upfront costs to owning a home—namely a down payment. 

What is a down payment? 

A down payment is an initial payment made at the onset of a large purchase, such as a home. When purchasing a house, the down payment covers a percentage of the total selling price and does not come from a lender. In other words, you need to save for a down payment before you can take out a home loan. 

How much does a down payment on a house cost?

A common misconception is that down payments require at least 20 percent. This is an option, but it’s not the only one. Depending on the loan program, first-time homebuyers can typically put down 3 to 20 percent. If a 20 percent down payment depletes your savings, it might be wise to consider a smaller down payment that allows you to keep emergency savings. 

For example, imagine you want to buy a $200,000 house. If you put $40,000 toward the selling price, or 20 percent down, your lender will provide the remaining $160,000, the equivalent of an 80 percent loan. If you put $20,000 down, you’re making a 10 percent down payment, and your lender will provide a 90 percent loan of $180,000. And lastly, a 3 percent down payment would only require you to put $6,000 towards the selling price. 

Ways to save for a down payment on a house 

Saving for a down payment can feel overwhelming without a plan. But if you break it down by budget, goals, and timeline, you can start saving and seeing progress toward your dream of homeownership. 

Calculate your budget 

It’s vital to purchase a home you can comfortably afford along with your other living expenses. That said, the first step to save for a down payment is to calculate your budget. This will help you determine how much you can manage in monthly loan payments—and how much you will need to put down to keep your loan payments within that budget. From there, you can also establish how much to spend on a house. 

Create a timeline and goal 

Studies show that people who write down their goals are more likely to achieve them. Once you determine your budget and house goals, define the exact steps you’ll take to get there. For example, if your goal is to have a $20,000 down payment on a $200,000 house four years from today, write down exactly how much you’ll save each month and put it on the fridge.

Set up automatic savings

Once you have a clear picture of how much you need to save towards your goal each month, set up automatic savings. To reach your down payment savings goal of $20,000 in four years, for example, you’ll need to put $417 in savings every month. With a DEXSTA checking account, you can set up automatic monthly transfers to your savings account. 

DEXSTA can help

Buying a home is an exciting investment in your future—and one you don’t want to take lightly. While saving for a down payment can feel daunting at first, smart financial planning and budgeting can help you reach your goal faster. When you’re ready to take the next step with a home loan, our DEXSTA loan officers are here to help.