Whether you are buying a new home, building a new home, or planning to repair an older home, you are likely excited by the prospect of closing the home and moving in.
Not so fast. Buying a home is one of the biggest investments most families make. Like Generation X and the baby boomers, the millennial generation dreams of becoming homeowners, saying goodbye to rent payments and welcoming the space they can truly call their own.
While many Millennials feel that finding the perfect home is the biggest part of buying a first home, there are other, potentially less fun, parts of the process that need to be considered. Before you start buying a home, you need to fully understand the various aspects of down payment for your home.
What is a deposit?
A home down payment is simply part of the money the buyer gives to the home seller. Usually this money comes straight from the buyer, while the remainder of the purchase price owed to the seller comes from the mortgage. When buying a home, the down payment amount is expressed as a percentage. For example, a 10 percent down payment for a $ 350,000 home from the buyer would be $ 35,000.
According to Bankrate, if the buyer cannot make the home payments (mortgage payments) and the property ends up in foreclosure, the down payment will be lost. Bankrate explains, “This gives you an incentive to make your mortgage payments. That is why the lender requires a down payment. “
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Down payments and mortgage insurance
On average, if a buyer pays less than 20 percent down payment, the buyer will need to get mortgage insurance. Mortgage insurance is designed to protect the lender, not the buyer. It is designed to reduce the risk to the lender of lending and to enable a first-time buyer with less than perfect credit to secure a mortgage.
Millennials can qualify for PMI or personal mortgage insurance that includes premiums that must be paid monthly or an option for an upfront premium that is paid at the start of the loan. FHA insurance is mortgage insurance that is paid to the federal government. This type has a prepayment premium plus monthly payments.
Mortgage insurance is money that needs to be budgeted to the lender along with your monthly mortgage payments.
Tips and tricks on how to save for your deposit
1. Consider loan payment programs
CNBC reports that while 80 percent of millennials want to buy a home, “very few are in a good buying position, largely because they haven’t saved up.”
Millennials who have not been able to save a 20 or even 10 percent home down payment due to student loans, lower income jobs, and other factors may have the option of a loan down payment program. Some Millennials can qualify for down payment support programs through both local and state agencies and see if they might qualify for an FHA loan. In addition, the National Homebuyers Fund (NHF) offers multi-state Down Payment Support (DPA) programs with non-refundable grants. According to the NHF, this type of down payment assistance can enable home ownership and offers the following:
- Down payment and / or final cost assistance, up to 5 percent of the loan amount
- DPA does not have to be repaid
- Available with affordable interest rates and different grant levels
2. How the mean real estate prices affect
When first time millennial buyers think about buying a home, they often underestimate how expensive the real estate market has become, especially in certain regions of the country. With this generation of buyers, real estate professionals repeatedly see a gap between expectation and reality. Knowing the median home prices in the area is important for millennials considering buying a home. If the median home price is $ 430,000, a 20 percent down payment is $ 86,000.
It is possible for Millennials to find a great home and stay on budget, especially when all of the elements, including down payment factors, are fully understood.
3. Find out about country-specific down payment assistance and resources
When looking for ways to get a down payment on a home, don’t forget to check your state and local government resources. Often times, they will offer you down payment financing and non-financial support resources. In my state, VHDA, Down Payment Assistance (DPA) grant can provide eligible first-time buyers with the funds needed to make their down payment. This program is funded by VHDA’s net income and is part of its commitment to strengthening home ownership opportunities for Virginians. You can search Google for your Status + Deposit support to find resources that apply to you.
4. Set aside part of your tax refund
Did you get your tax refund this year? While some people advocate using it to reward yourself for your hard work, the full amount can be used towards your down payment. While putting it in a savings account (and not spending it) and continuing to spend less and work towards getting cash for your home down payment may not be enough.
5. Set aside part of your performance bonus
Got a raise at work or a Christman bonus? Instead of spending it on entertainment, save some or all of it in your down payment fund. Unless you are planning on saving the money that you know is coming in, it can be easy to actually abuse those funds. Your goal should be to build a down payment fund and every dollar counts.
6. Make recurring savings
Some money saving apps like Qapital can help you make recurring savings deposits on a schedule like weekly, monthly or quarterly. This can be very helpful as you don’t have to lift a finger. Just download the app and set your goal to receive a deposit amount. This is how you can achieve your savings goal. For more information on Qapital, check out our full review.
7. Withdraw from your IRA without penalty
Did you know you can withdraw your retirement account and use the money to pay a down payment on a home? This is true if you are a first-time homebuyer and borrow up to $ 10,000 from a Traditional or Roth IRA.
You have to keep in mind that this is not free money, but rather that you are paying taxes on the money that you withdraw. If you and your significant other have IRAs, both of you will take up to $ 10,000 for a total of $ 20,000 towards your down payment.
8. Earn extra income on the side
Join the other 44 million other people who said they had a side job in 2019 to make extra money. As the gig economy evolves, gig economy jobs and ways to make money quickly so too, so you can get cash for your down payment fund.
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9. Use a budgeting app to stay on track
Managing personal finances is a tedious task, but that doesn’t mean you shouldn’t pay attention to budgeting. Managing your money is the best you can do for yourself in today’s unpredictable economy, and keep track of saving for your down payment. Also, there are various online budget tools that can help you achieve your goal.
The bottom line
These ways to get cash for a home down payment can help you and your family find the home of your dreams. If you think you still need some tips on how to save, check out 55 Ways To Live Cheap.
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