Making a Down Payment On A Home? What You Need To Know
When a person first starts to think about buying a home, one of the first things that they must do is determine how much they need to save for the down payment. Once they've set a budgeting goal, then they need to establish a budget that can help them achieve that goal. Understanding how a down payment works can help home buyers purchase the home that's right for them.
Save the Right Amount
Saving the right amount is important when it comes to down payments. The amount of money you're able to put toward a down payment will affect the amount you can spend on a home. If the home costs under $500,000, the minimum down payment is 5%. If the house costs over $500,000, the home buyer must put down 5% of the first $500,000 ($25,000), and 10% of everything over the $500,000. Home buyers who have a target price range for homes in their area should save a down payment that will match that target price range.
For example, imagine a Parsons North neighborhood home buyer wants to purchase a home that is around $400,000. That buyer should save at least $20,000 to make the minimum down payment for the property. In the case of a home buyer who wants to purchase a home that is around $1,000,000, the buyer will need to save $25,000 for the first $500,000, plus $50,000 for the remaining amount. Altogether, that home buyer should save at least $75,000.
The Bigger the Down Payment, the Better
Of course, it's possible (and even wise) to put down more for the down payment than is required. Making a larger down payment than is required can save home buyers thousands of dollars over time, depending on how much the down payment is. One of the ways that making a large down payment can help is by saving money on mortgage insurance. Home buyers who make a down payment of 20% or more are exempted from paying for mortgage insurance.
In addition, bigger down payments can save home buyers money on interest. The bigger the down payment, the smaller the mortgage. This can save homeowners thousands over time on interest.
Establish a Budget
Saving for a down payment on a home can be a challenge for many home buyers. Establishing a budget is an important part of saving money. Putting away a certain amount for the down payment each month can help. Many people who are trying to save for a down payment must cut back on their expenses in order to save enough over a short period of time.
When budgeting to save for a down payment, home buyers must also remember that they'll need money for moving, buying furniture and making home improvements when they move into their house. Typically this amounts to thousands of dollars. Home buyers who want to know how much they can expect to spend on moving must get quotes from movers. Doing this can help homeowners gauge how much they'll need to move.
Contact a Real Estate Professional
If you're thinking about buying a home sometime in the next few years, contact a real estate agent in your area. He or she can help you decide which price range and neighborhood is right for you, and how much you'll need to save in order to be prepared.