Saving for your first home down payment? I remember when my husband and I put $20,000 down on our first home in 2014. It seemed like a massive chunk of money.
Our home has appreciated significantly since 2014 and now we’re in the process of selling it for potentially a $100,000 profit.
If you’re dreaming about your first home but don’t know how to save for one, here are stories from 6 real couples who saved for their first down payment. Scroll down for the list.
First, we’re going into some background.
How Do You Save for a Down Payment?
The first thing you need to do is determine how much you want to put down on the home.
Questions to ask yourself:
- Is it a house for you to live in or a house you want to use as a rental?
- What is the max budget you can afford each month for mortgage plus insurance?
- What is your timeline for buying a home aka how much time do you have to save?
- How much money do you need to save in addition to the down payment to fix up the house, for the inspection, for closing costs, and to furnish it?
- If you choose not to put down 20%, can you afford private mortgage insurance tacked on the monthly mortgage? (PMI could cost you up to 1% of the loan each year).
- What is your credit score and what types of loans could you be approved for?
How much did I put down on my first home?
We chose to put 5% down on our first home and plan to put 20% down on our next home because we don’t want to pay private mortgage insurance. We just didn’t have the 20% the first time around. I wouldn’t necessarily recommend putting 5% down to others.
It may make sense for you to put just 5% down however if you want your home to be a rental, you plan to house hack the home (have others pay your mortgage by living with you in the home as roommates), or you think you can get a better return investing your cash elsewhere (factoring in the PMI cost).
Other factors to keep in mind for the down payment amount:
- If you are in a competitive market, such as Seattle, San Francisco, or NYC – you may be competing with all cash offers or people who are putting down large down payments. Your 5% down may not look as attractive to the seller because they may view a buyer with a larger down payment as more financially secure and more likely to close.
- You don’t want to buy too much home and get yourself in a situation where you are overwhelmed by the mortgage if you lose your job or your partner loses their job.
Do you actually need to buy a home right now?
The amount you put down on a home is personal, just like the decision to buy a home in the first place. Many people believe renting is actually better than buying long-term and in some markets, so make sure you are making the right decision for you and your family.
I. Home Down Payment Savings Account
I have a special down payment savings account. I recommend using a company like Ally that will give you a 1.75% return (at the time I’m writing this post) on an online savings account.
That is who we are using to save for our next home and I like that my money is earning money.
I’m not withdrawing money out of this account or using it regularly like a checking account. This is a purely savings account and the money goes in and not out.
This account is also separate from my emergency fund which I keep in another bank account.
I automatically deposit into this account from my paycheck and my side hustles monthly. Any blogging revenue I get goes into this account as well.
Related Post: Our Free Down Payment Savings Plan Printable Chart
II. Home Down Payment Savings Calculator
- Nationwide has this down payment calculator which will calculate how much you have to save per month over 3 years.
If you’re timing is a bit tighter than that, check out this Zillow calculator which you input your interest rate, loan type and down payment and it spits out a monthly mortgage for you. You can play around with the different down payment amounts.
III. Home Down Payment Savings Plan
Hopefully you’ve set your eyes on an amount you need to save. Subtract the amount you’ve already saved from the total and then divide by the number of months you have left before you want to purchase a home.
Don’t forget about the costs to furnish the home, any maintenance or renovation it needs, for the inspection, etc. You’ll want to save for those too!
Down Payment Assistance Programs
There are down payment assistance programs that will help you save for your first down payment. Most just let you put a lower amount down (like 3%), especially if you are a first time homebuyer.
I’m personally skeptical of these programs because I know that you’ll have to pay it back in taxes or in some other way (such as buying more home than you can afford).
Check out this website though for home downpayment assistance programs to see if you are eligible. I also recommend googling for any assistance programs in your state that may not be listed here.
Loan options to consider and look into if they apply to you:
- FHA (first time home buyer – can put 3.5% down)
- VA (for veterans – can put 0% down)
- HUD 203k (for fixer uppers – can finance the renovations)
Stories from 5 Real People Who Saved for a Down Payment
Want to read about real couples who saved for their down payments? Here are 6 stories to read.
- The Every Girl – this blogger said that she saved her tax return every year and has been saving aggressively since 18 to buy a home in her mid-twenties. She and her husband bought a 1930s brick tutor in Salt Lake City.
- Carrie, featured in the NY Times – She chose a downpayment over a fancy wedding. I had a $15,000 budget wedding so I can definitely get with that approach.
- Jordann of My Alternate Life – Jordann and her husband increased their income at work and she picked up extra work on the side freelancing. She has a neat little graph of their down payment savings over ti me which will give you a good idea of their progress.
- Tiffany of Don’t Waste the Crumbs – She and her husband scrimped and saved to put 100% down on their home, meaning they paid entirely in cash. That is amazing! She says they hadn’t seen a movie in 5 years and took their saving super seriously.
- Give me Back My Five Bucks – This blogger utilized Canada’s Home Buyer’s Plan which lets you put retirement savings towards a home down payment. He also eliminated debt first which makes sense.
- And the sixth couple is my husband and I! Read about our home buying journey: What We Learned Buying Our First Home
How to Save Money on Rent While Saving for a Down Payment
Recently I was asked to contribute a tip about saving money on your rent and I think it’s so fitting to this topic.
My tip was that renters can use all of the amenities in their place of rent (gym, entertainment spaces, etc.) to save money. And renters can consider those costs when selecting a place to rent.
It can feel like a long time when you are renting saving up for your first down payment and picking a place that will allow you to save costs makes so much sense.
Check out the article for other budgeting tips for renters here.
How are you saving for your home down payment? Any tips?
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