How to Save for that Downpayment
There are lots of different ways to save for your down payment on your first home. There are also different requirements for your down payment depending on what type of loan you qualify for.
Conventional loans: Allow down payments of just 3 percent of the purchase price. For a $350,000 home, that equals $10,500. However, with a down payment of less than 20 percent, you’ll need to pay private mortgage insurance until you reach 20 percent equity in the home.
FHA loans: Loans insured by the Federal Housing Administration (FHA) only require a 3.5 percent down payment of the purchase price. On a $300,000 home, that equals $10,500. You’ll need a credit score of 580 for an FHA loan, or 500 if you have 10 percent down.
VA and USDA loans: Loans from the U.S. Department of Veterans Affairs (or VA loans) don’t require a down payment. Similarly, if you meet the requirements for a U.S. Department of Agriculture loan, you won’t need a down payment.
Jumbo loans: Jumbo loans are for home purchases that exceed conforming loan limits set by the Federal Housing Finance Agency. These mortgages often require a higher minimum down payment — anywhere from 10 percent to 20 percent — which can vary by lender, location and loan size
Once you have a better idea of the minimum requirement for your loan type, it's time to start saving for that down payment. There are lots of ways to start saving, some that have proven successful for people include:
Explore additional sources of income
If you have the spare time and effort, another income source can help you save for a down payment. That can mean taking up a side hustle like freelancing, pet sitting, babysitting or working for a gig app company (like Uber, Instacart or Doordash). You might even be able to turn a hobby into a way to make money.
Look for down payment assistance programs
Down payment assistance could be an option if you’re struggling to save, especially if you’re a first-time buyer. This assistance can come in various forms, from deferred or forgivable loans to down payment grants. Each program has different eligibility requirements, usually based on income and location.
Reduce your expenses
If you’re saving for a house, cutting back on your spending can help. Start with cutting unnecessary expenses, like subscription services, entertainment, delivery services or eating out. If possible, negotiate down recurring monthly or annual expenses, such as getting a better car insurance rate or reducing an internet bill.
Besides the downpayment it is important to remember additional costs you will see when purchasing a home. Closing costs, maintenance, moving expenses, and emergency funds are also important costs to consider when building up your savings!
