Purchasing a home is likely the most significant financial commitment anyone can make in their lifetime. A home down payment can be one of the biggest hurdles home buyers need to overcome to make their dream of homeownership reality. Budgeting for a home down payment can be intimidating if you don’t have a clear plan. Here are some tips to help you budget for your home down payment.
Make a Realistic Down Payment Goal
Home buyers often get caught up in the goal of making a 20 percent down payment — especially if they’re looking at conventional loans. However, it’s important to make sure you’re being realistic. According to the National Association of Realtors, the median down payment in 2019 was just 11 percent — and many lenders offer programs that require no down payment at all.
Take a look at your current financial obligations, and evaluate your monthly income. Estimate how much of your monthly income you can set aside for a down payment and what you’ll need to save to reach your goal. If you don’t think 20 percent is realistic, set a different down payment goal.
Know Your Loan Options
When it comes to down payments, not all loans are created equal. Be sure to research all the loan options available to you and determine which best fits your situation.
FHA (Federal Housing Administration) loans have the lowest down payments and are typically open to borrowers with less than perfect credit. USDA and VA loans are geared towards buyers purchasing a home in a rural or suburban area, and do not require any down payment at all.
Alternatively, if you want to secure a conventional loan, you may qualify for programs such as Freddie Mac and Fannie Mae’s HomeReady or Home Possible programs. Depending on your situation, you may be able to qualify for a loan with as little as 3 percent down — or even no down payment.
Set a Plan
Once you know your down payment goal and loan option, you’ll need to set a plan to reach it. While you may feel overwhelmed, having a plan and sticking to it will help make the situation more manageable.
Start by estimating how long you think realistically it will take for you to save for your down payment. Use a loan calculator to determine the loan amount you’ll need so you know exactly how much you have to save. From there, divide the total amount by the number of months you’ve given yourself, and that’s your monthly goal. You can always adjust along the way if you need to.
Keep Your Eye on the Prize
Home ownership requires constant commitment, and being consistent with your budgeting will be the key to success. To stay motivated, always keep your eye on the prize. Whenever you feel like giving up or feel overwhelmed, remind yourself why you’re doing this in the first place. Sticking to your goal will be worth it in the end.
Get Creative
If you’re having trouble reaching your down payment goal on your own, you may want to get creative. Consider taking on a side hustle and using the additional income to help you reach your down payment goal. Additionally, you may also take advantage of any employer-sponsored programs or even government programs to help you reach your goal.
Finally, don’t be afraid to reach out to family and friends — sometimes, a little help is just what you need to get to where you want to be.
Making a home down payment can be a difficult endeavor, but it’s achievable with a plan and a bit of discipline. By making a realistic down payment goal, researching the right loan program for you, and getting creative with your plan, you’ll be able to successfully budget for your down payment and get one step closer to the home of your dreams.