One of the biggest decisions you’ll ever make is buying a house. It’s challenging, but also rewarding since it is such a big part of your daily life. But you may be wondering how you can afford to buy a house in this economy. Let’s go over why lenders want a down payment, how much you need, and how you can save money on it.
Why Lenders Ask for a Down Payment
A down payment is what you put down when you buy a house. This can be cash or loans.
You must put money down when you buy your first house because it protects the lender. How much you need as a down payment depends on what kind of loan you’re getting and how much your monthly payments will be.
How Much Do You Need to Put Down?
For a first time home buyer, the down payment is usually about 20%. That means if you want to buy a $150,000 house, you’ll need $30,000 just for the down payment. However, you still have plenty of options if you don’t have that kind of cash. For instance, you can take out a home equity loan or a personal loan, or you can look for alternative lenders. You could also ask family or friends for help with financing.
Alternatively, some special home loans have down payment requirements as low as 3.5-5 percent. However, in some of these cases, the interest rate is higher than usual. Ask your lender about which down payment options can work for your budget.
How to Save Money on Your Down Payment
You can save money on your down payment by taking these steps.
- Get a mortgage with a lower interest rate.
- Get pre-approved for your mortgage before you start looking at houses.
- Get the most competitive deal on your home purchase or refinancing, including the lowest mortgage rates, points, and fees in the market today
- Try putting your extra cash into a savings or investment account that pays a higher interest rate than what you’re currently earning
Often, first-time home buyers have a challenging time saving up for a down payment. This is especially true for those who struggle to hold down a regular job for several years. As a first-time home buyer, saving up a down payment can take six to eight years, which makes it difficult to get a house quickly. Fortunately, by using the right tools. These tools include a mortgage calculator, a real estate listing, and a directory of lenders. This will greatly increase your chances of borrowing the money you need to make the down payment to buy a house.