How to Save for a Down-Payment
We work with first-time buyers regularly, one of the first questions we get is “How much money do I need to have saved?”. This is a question that can be answered in detail by your mortgage lender, but because we get this question so often we wanted to take some time to address it here. We have written before about all of the other costs of buying a home, that blog can be found here: http://www.jacksonvillehomes365.com/home-ownership-what-are-the-real-costs-of-buying-a-home/ . This week we will explore how much you need to save up for a down payment and how long you can expect it to take. Skip to the third point for the quick answer.
- Required Down Payment Percentages.
The most common misconception we run into is that many think they must have 20% of the home’s price to put down. A higher down payment will certainly save you money, but it isn’t necessary. As you will be paying interest on whatever amount you borrow, the more you borrow the more the house will actually cost. Add mortgage insurance to the increased interest costs, and there is a real difference.
- Most VA loans do not require any amount down and do not require borrowers to pay any mortgage insurance.
- FHA loans require minimum down payments as low as 3.5%, and you will have to pay mortgage insurance for the life of the loan. Depending on credit score and history, a higher percentage may be required.
- Conventional Loans require a minimum of 5% down, mortgage insurance will be required until your home equity is above 20%. As with the FHA loans, specific required down payments are dependent on your credit score and history.
- Estimated down payment amounts.
Percentages are great but when we use some real numbers, things become more clear. As of
this month, the median price for a three-bedroom home in Jacksonville, FL is $180,000. In
addition to the fees and other closing costs outlined on the blog linked above, you will need to
save up for the down payment. Again, the higher your down payment, the lower your monthly
payment for the same purchase price.
- 20% is $36,000
- 5% is $9,000
- 3.5% is $6,300
- Timeframes for saving.
Again, all these figures are for the sake of giving you an idea of what to expect, your income and times will probably differ. The median income in Jacksonville, FL is $46,768 per year. Monthly, that breaks down to $3,872.33. Many financial institutions suggest saving 20% of your income, if you direct that savings for the purposes of a down payment the median person could put aside $774.47 per month. Using these numbers, the following is how long you can expect it to take you to save up for a down payment on the average home in Jacksonville. If you can save more, you’ll get there faster. If you cannot afford to put aside a full 20%, it will take a bit longer. Assuming you make the median income and buy the median house.
- 20%: 3 years 10 months and 2 weeks.
- 5%: 11 months 3 weeks
- 5%: 8 months 1 week
For some, home ownership is the realization of a dream, to others it is a financial necessity and many don’t have any desire to own a home at all. Whatever your motivation, home ownership is possible for more of us now than at other points in history. In order to reach a goal, you need to first define it. Hopefully this helps put things into perspective. With discipline and by being strategic, the average person with the average income could go from having zero savings to having a down payment for the average home in less than a year.
