How to Save for Your First Home

Let’s start with the basics. A down payment is the cash you bring to the closing table when buying a home. You may borrow money from the bank in the form of a home loan or mortgage, but a portion of the total cost must come directly from you.

Here’s why: The down payment acts as an insurance of sorts for your lender. When you hand over money from your own account, you’re officially invested. You’re more likely to make good on your mortgage payments month after month and year after year. Banks like working with folks like you.

By saving up for a down payment, you not only prove yourself to a lender, but you also set your own mind at ease. A sizeable down payment reduces your monthly house payment, allowing you to choose a shorter mortgage term so you can say goodbye to this debt sooner rather than later.

Figure out what you can afford. 

The rule of thumb is to spend no more than 25% of your monthly take-home pay on your mortgage payment. If you tie up too much of your budget in your monthly payment, you leave yourself unprepared to face emergencies or embrace opportunities. We find that 25% (or less!) is the sweet spot.

Talk to your Realtor about special financing programs.

finding the right financing for their circumstances can be harder. Fannie Mae has several financing options. The mortgage options address the financing challenges of multi-generational households, such as parents, adult children, and others sharing a home, as well as low- and moderate-income households

Based on your research, determine how much you will need to save.

Aim for between 10% and 20% for your down payment. If you haven’t already, hone in on the percentage that works best for your family. Ideally, you’ll choose to put down 20%, which can lower your interest rate, open you up for a 15-year mortgage, and help you avoid private mortgage insurance (PMI).

Pay off credit cards, auto loans and any personal loans.

This will make it easier to get a loan at a lower rate. It makes the most sense to make payments on the debts with the highest interest rates. You’ll find that, in general, credit cards will have higher interest rates, so paying those sooner rather than later can save you in interest.

Creative Ways to Save for a Down Payment

If you do the math and find that your monthly savings amount is just too high, that’s okay. Give yourself a little more time to save up and be on the lookout for creative ways to save. Here are some suggestions:

Set up a Down Payment Fund.

Throw extra money toward your Down Payment Fund

Store your down payment savings the smart way.

Cut cable

Pack your lunch

Make coffee at home

Cancel gym memberships

Work overtime

Start a side business

Get a second job