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Nine Ways to Accumulate a Down Payment on a Home
10/09/2015

Nine Ways to Accumulate a Down Payment on a Home

The amount of your down payment can help determine the mortgage amount you need when buying a home.

9 Ways to Save for a Downpayment

Saving more for your down payment may reduce your monthly payments.  Saving faster will help you get into a new home sooner. Consider these nine ways to save more and save faster.
 

Accumulating a Down Payment on a Home

Figuring out the amount of a house you can afford will largely depend on the level of your monthly payments. There will be property taxes, insurance and upkeep, but your monthly payments will probably be the most important part of your decision. 

The fine line you walk when determining a level of down payment is based on the level of mortgage payments you can afford and how much money you have for the down payment. Mortgage rates are constantly changing and there are all different types of mortgages available. It is always a good idea to consult a mortgage expert for a pre-approval when considering these choices.
 

Estimating your mortgage payments

Below is a chart showing monthly payment examples for different amounts at different interest rates. The chart reflects payment assumptions using a 30-year fixed mortgage. Payments with a 15-year mortgage will be higher, but you will pay off the mortgage sooner and pay much less interest over the life of the mortgage. 

 

Mortgage Amounts 4.00% APR 4.50% APR 5.00% APR 5.50% APR

$50,000

$238.71

$253.34

$268.41

$283.89

$75,000

$358.06

$380.01

$402.62

$425.84

$100,000

$477.42

$506.69

$536.82

$567.79

$150,000

$716.12

$760.03

$805.23

$851.68

$200,000

$954.83

$1,013.37

$1,073.64

$1,135.58

 

Accumulating a down payment

Most lenders require certain levels of down payments to consider you for a mortgage. It often ranges from 3.5% of the purchase price to 25%. The larger the down payment, the easier it will be to qualify. However, you should also remember that it may be nice to have some extra money available after you move into your new home. New carpeting, new furniture or improving the landscaping all requires money. You should not stretch yourself too thin. 

Here are some ways to consider building funds for the down payment.
 
  1. Save. As simple as it sounds, most people end up saving for a couple of years to accumulate the amount needed. This may mean less or cheaper entertainment or dining out. One easy way to save is to enroll for an automatic savings plan with us. Have a certain amount transferred from your checking account to a dedicated savings account each month. This provides some discipline and you may be able to use a money market type of account to earn higher interest.
  2. Borrow the down payment from your retirement plan. Many company sponsored 401(k) or profit sharing plans have provisions to let you do this. Check the details of your plan. Your Human Resources or Financial Planner can help. You will also want to consult your tax advisor for information on potential tax implications and penalties.
  3. Move. Living in a cheaper apartment while you accumulate your down payment can help you get your money faster. Cheaper rent may balance off a longer commute to your job. If you are just starting out or are considering changing jobs, you may want to consider an area that has lower costs of living.
  4. Reduce other high interest rate debt or consider a longer term. Paying off credit cards will take some of your savings, but you will not be paying the high rates usually found with credit cards. If you are financing a car or something else on an installment basis consider a longer term, generally you can make extra payments or pay it off sooner in the future but the longer term will give you a lower payment and allow you to put the difference in your savings.
  5. Create a budget and follow it. Having a budget that is based off your take home income will help you determine where you can eliminate unnecessary spending.  Make sure you put a line on your budget for savings.
  6. Sell some of your toys. If you have an extra car, snowmobile, or boat that you may not use as much as you would like to consider selling it. If you do sell something, be certain to utilize a bill of sale and make copies of the signed title and check that you will deposit from the purchaser. 
  7. Get a second job and save your earnings. Many times a part time job will not be considered in your income calculation if you have not been there for two years. However, the money you make can be used towards your down payment.
  8. Skip a year's vacation. Vacations can often times cost much more than anticipated, this year consider a stay-cation and take that time to look for homes or meet with a Mortgage Expert for a pre-approval.
  9. Gift from your parents. Many parents are willing, or even anxious, to help their children with the purchase of a first home. Be respectful of their generosity.  


Conclusion

Buying a home, especially your first home, is a big financial and emotional step. If buying a home is important to you, do your financial homework. Investigate your mortgage options. Determine what level of monthly mortgage payments will be affordable and comfortable. Use some discipline to save your down payment and reach out to your local North Shore Bank lending professional who can help simplify the process and guide you. 

 

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