Purchasing a property is not an easy process. There are many hoops and hurdles that must be overcome with the guidance of a professional, certified Realtor, not to mention the preparation that must occur before you even begin to look for a property.
One of the biggest steps you must take is save enough money for a down payment. Why? A down payment is the amount of money that you will pay on the home upfront and many lenders recommend a minimum 20% of the home’s price.
Of course, there are many programs where you can put down as little as 3% but even then, that is a lot of money for many people.
Here are the most common reasons why you should save for a good down payment and how you can do it:
Lower Monthly Payments & Interest Rates
The main benefits of a large down payment are lower monthly payments and lower interest rates over the life of the loan. In addition, you do not have to pay private mortgage insurance (PMI) which can add to the costs of monthly payments.
More Bargaining Power
Sellers like to see that you are willing and able to put down a lot of money on their home up front upon closing. As such, you will typically have more bargaining power when it comes to purchasing the property you want.
Put Aside A Part Of Each Paycheck
An easy way to save up for a down payment is to put aside a percentage of your paycheck. For example, if you bring home $1,000 every two weeks and put aside 10% of those paychecks, you could easily save over $2,000 in a year.
Of course, you can always supplement this with extra cash you find, including that big jar of change that is just sitting on your closet floor. Always budget carefully so you know how much you can afford to put away.
Always Budget Carefully
While there are many advantages to putting down a large down payment, don’t fall into the trap that you have to put down 20%. As mentioned before, while 20% is considered traditional it can be a barrier to first time homebuyers.
Putting down a smaller down payment has its advantages as well:
- Being able to buy a home sooner
- More funds for home repairs or renovations
- Extra funds for emergencies
- Avoid draining your savings
Budgeting your finances carefully is the hallmark of a responsible home buyer. Putting down more than you can afford on a home may come with many advantages, but not when it makes you struggle to make ends meet.
Always consider the long- and short-term benefits of the size of your down payment and speak with your lender and financial advisor about what is best for you.