If you are thinking about purchasing a home, you need to sharpen your focus on what you need to do to save an appropriate amount of money for a down payment. The amount of a down payment you will need to marshal together largely is a function of your credit history and score. Indeed, those two all-important pieces of data will be determinative of whether you will qualify for home mortgage financing in the first instance.
With this general information in mind, since 2016, the average down payment on a residential home buy was in the neighborhood of about 6 percent of the total purchase price. In other words, the average down payment on a $300,000 home would be about $18,000.
No matter the anticipated down payment, if you intend to purchase a home in the not too distant future, there are some strategies to consider employing when it comes to saving money for a down payment. Indeed, there are five tips to save money for a residential down payment.
Make Realistic Decision About How Much Home You can Afford
Perhaps the most common mistake a would-be homebuyer makes is failing to set a realistic goal in regard to how much of a home can be afforded. You need to closely analyze your income together with the amount of money your have in savings at this time. You need to frankly assess how much money you will be able to set aside within a specific period of time to go towards a down payment for the purchase of a home.
Establish a Specific Savings Plan
Once you make a realistic assessment of the amount of home you can afford, you then need to craft and implement a specific savings plan. This must be thoughtfully developed and not something that is tossed out on the fly.
The development of a specific saving plan for a down payment needs to closely take into consideration what you start with in savings that can be dedicated to a home down payment. You need to honestly assess how much money you believe you reasonably can set aside each month into the savings account.
As a practical matter, you need to open a bank account designated for the down payment campaign. You may also want to consider an automatic monthly transfer into that account of that the funds intended for the down payment are no spend on something else.
Cut Back Expenses
Odds are that you are like most people who do not already have excess money in their monthly budgets that can easily to placed into a down payment fund. Rather, you will need to take a look at your budget and cut out expenses to make money available for your a down payment on a home purchase.
While most people don’t have a stream of excess cash readily available, they do have expenditures that they can cut from or reduce in their budgets to go towards funding a down payment on a home purchase. Finding money in an existing budget can require some significant budget cuts. It certainly requires commitment to maintaining the cuts once they have been identified.
Finance Down Payment from Your 401(k)
If you are cash-strapped, or think saving money to pay a down payment will prove to be a herculean task, another alternative is to finance a down payment using your 401(k). Of course, that assumes you have one and that there is sufficient money in it.
The law permits you to borrow from your 401(k) to make a down payment on the purchase of a home. This type of financing usually has a lower interest rate than other alternatives.
You do need to keep an important fact in mind in regard to this tip. By borrowing from your 401(k) you are taking money away from your retirement account. However, you are reinvesting it into a home.
Down Payment Assistance
When you are planning how to raise money for the down payment on a home purchase, keep in mind that you may qualify for a federal program that can assist you in this regard. Depending on your circumstances, you may qualify for a VA program that can assist you with a down payment. In addition, each of the 50 states have FHA backed programs that may be able to provide you with down payment assistance. There may be some other options available to you as well via a federal, state, or even local governmental agency, depending on where you reside.
Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for , where you can get personal checks and business checks.