Here's How Much You Need to Save to Afford a Down Payment on a House
If you are interested in buying a home saving this amount of your paycheck could help fund a down payment, according to Grow.
Contrary to popular belief, a house can be bought for far less than the traditional 20 percent down payment. “The idea they’ll need 20% keeps a lot of people from taking the plunge,” said Andy Taylor, head of the mortgage team at Credit Karma. Financial institutions sometimes allow smaller upfront payments. The median down payment is only 7.6 percent.
According to Bankrate, lenders typically ask for a minimum of 5 percent to 15 percent to secure a mortgage. Certain types of federally backed mortgages require as little as 3.5 percent. Even sometimes, you can get away with putting nothing down.
According to Zillow, the national median price of a home is $259, 906. Assuming you are paid bi-weekly you should save this much per paycheck for a typical down payment.
- For a 3 percent down payment ($7,797) after 1 year: $300 per paycheck
- For a 7.6 percent down payment ($19,753) after 1 year: $760 per paycheck
- For a 20 percent down payment ($51,981) after 1 year: $1,999 per paycheck
Lenders prefer a 20 percent down payment because it lowers the amount of risk on the loan. Typically, individuals that pay less than 20 percent upfront have to buy private mortgage insurance which can add 0.5 percent to 1 percent to the mortgage each year. Furthermore, there are other costs apart from a down payment. According to ClosingCorp, closing fees averaged $5,749 for a single-family home, which is more than twice what typical Americans aged 34 and younger have in savings.
“Just because you can afford the monthly mortgage does not mean you can afford the house,” said Thomas E. Murphy, head of Murphy & Sylvest Wealth Management. “You need to allow for property tax, insurance, maintenance, and upkeep.”
The good news is that you may be eligible for help. Many states offer down-payment assistance programs for qualifying individuals. Some employees also offer down-payment and mortgage assistance.
The main purpose of this article is for you to realize that buying a home entails much more than a mortgage. Individuals considering purchasing a home with their savings or emergency fund to buy a home quicker should wait and avoid risk from expensive repairs or other issues.
“Whatever you think you can afford on a new home purchase, give it a test drive,” Mark La Spisa, a certified financial planner and president of Vermillion Financial Advisors, tells Grow. “Start saving the extra amount that is the difference between what you are spending now versus what you will spend after the new home purchase. Put this difference from projected expenses toward saving and trying out the new expense spending plan before it is too late.”