If you’re in the early stages of preparing to buy a home, you’re probably getting your down payment savings plan established. How much money will you need? And how will you reach that goal?
With decades of experience helping buyers just like you land their dream homes, we can tell you how much you’ll need and how to get there.
How Much Do I Need for a Down Payment?
You may have heard the old rule of thumb that says you need to save 20% of the purchase price for your down payment. But this advice is entirely outdated and no longer true.
Today’s buyers only need around 3-5% with good credit. Even with less-than-stellar credit, you may be able to find a lender who will allow you to put just 10% down.
As a first-time homebuyer, you might qualify for the popular FHA mortgage option, which requires just 3.5% down with fair credit. For reference, with the median purchase price in the Bay Area at $1,340,000 (as of May 2021), a 3.5% down payment would come to $46,900.
Be careful not to overlook the additional expenses of buying a home. In addition to the down payment, you’ll want to budget for:
Closing costs (typically 3-5% of the purchase price),
Moving expenses,
And any renovation work you want to complete immediately.
How to Save For Your Down Payment
Now that you know how much you need, you need to figure out a way to save that money.
Here’s a simple but effective 5-step down payment savings plan:
Review your current budget. To know how much you can save each month, you need to know how much cash is coming in and how much is going out. Check your credit cards and bank statements to get an accurate idea of where your money is going.
Calculate your monthly savings goal. Divide the amount of money you need by the number of months left until you want to achieve your goal and buy your home. That’s the amount of money you’ll need to save each month. If that amount seems too high or too low, try adjusting your timeframe to change the number of months you have to hit your target.
Choose which expenses to cut. We all have areas where we spend unnecessarily. Funneling that money toward your savings goal can help you get there faster.
Add income as needed. If you’re struggling to meet your down payment savings goal simply by cutting expenses, you might want to consider adding another income stream (easier said than done, right?). The good news is that the gig economy makes it easier than ever to earn extra money outside of your day job. Whatever marketable skills you have, you can offer your services on online platforms to supplement your income and reach your goal sooner.
Automate your savings. This is the secret sauce for savings success. To fool-proof your down payment savings plan, automate transfers to your savings account. Let’s face it...you’re probably not going to remember to transfer the money from checking to savings each month, and then you’re at risk of accidentally spending it. Eliminate this risk by setting up automatic transfers from your checking account to your savings account. Your down payment savings plan is now on autopilot!
To make your new home budget go as far as possible, contact the experienced real estate professionals at Sequoia Real Estate. With real estate agent fees paid by the seller, it costs you nothing to hire professional representation in your home purchase. And with our sophisticated value analysis and negotiation skills, we will get you the best deal possible on your new Bay Area home.