Conventional Loans typically require a 20% down payment. Many First Time Home Buyers have options to qualify for a down payment of as little as 3% down or by using River City Mortgage’s 3% Lender Grant program, even 0% down.
FHA Loans only require a 3.5% down payment for most buyers and have more flexible qualification criteria allowing buyers with scores below 620 to still qualify to purchase a home.
VA loans are reserved for men and women who served in the military, in almost all circumstances there is no down payment required.
USDA loans require zero down payment but have very specific requirements on income and property location but are a great option if you qualify.
Non-Conforming/Jumbo Loans are loans that don’t fall under any of the prior loan types and are available for buyers purchasing a home in excess of area loan limits or using alternative income sources to qualify. These loans will typically require more down anywhere from 10 to 25%.
In addition to down payment buyers also need to budget for closing costs. These can run from zero if negotiated to be paid by the seller, to a few percent of the purchase price. Closing cost covers Lender fees, 3rd party fees such as an appraisal or title work, Government fees, and funding an escrow account to pay taxes and insurance when they come due in the future.
Next, we’ll explore practical strategies to help you save for that crucial down payment.
- Set Clear Goals
Once you’ve researched the housing market in your desired area to determine typical home prices and down payment percentages, you can set clear savings goals. Break down your target amount into smaller, manageable goals and establish a timeline for achieving them.
- Create a Budget
A budget is a powerful tool that can help you track your income and expenses, identify areas where you can cut back, and allocate more funds towards your down payment savings. List all your sources of income and track your expenses for a few months to identify opportunities for saving.
- Automate Your Savings
Make saving for your down payment a priority by automating your savings contributions. Set up a separate savings account specifically for your down payment fund and arrange for a portion of your paycheck to be deposited into it automatically each month.
- Cut Costs and Increase Income
Consider ways to cut costs and increase your income to accelerate your savings progress. This could involve downsizing to a cheaper living arrangement, picking up a side hustle, or negotiating better deals on your regular expenses.
- Consider Alternative Sources
In addition to traditional savings, there are other sources of funds you can tap into to bolster your down payment savings. These may include gifts from family members, proceeds from the sale of assets, or borrowing from your retirement accounts (with caution).
Saving for a down payment requires discipline and patience. Stay focused on your objectives and be prepared to adjust your strategy as needed if unexpected expenses arise. The key is to remain flexible and resilient in the face of challenges.
Saving for a down payment is a significant milestone on the path to homeownership, but it’s a goal that’s well within reach with the right approach. Remember, every dollar saved brings you one step closer to achieving your goal.
