How to Save Money to

H O W T O S A V E M O N E Y
T O
Buy a House
ARTICLE SOURCE: www.everydollar.com
IMAGE SOURCE: https://artesiantitle.com/

Buying a Home
Saving
How to Save Money to Buy a House
Looking to buy a house? You'll need to save money for a
down payment.
What Is a Down Payment?
Let’s start with the basics. A down payment is the cash
you bring to the closing table when buying a home. You
may borrow money from the bank in the form of a home
loan or mortgage, but a portion of the total cost must
come directly from you.
Here’s why: The down payment acts as an insurance of
sorts for your lender. When you hand over money from
your own account, you’re officially invested. You’re more
likely to make good on your mortgage payments month
after month and year after year. Banks like working with
folks like you.
By saving up for a down payment, you not only prove
yourself to a lender, but you also set your own mind
at ease. A sizeable down payment reduces your
monthly house payment, allowing you to choose a
shorter mortgage term so you can say goodbye
to this debt sooner rather than later.

How Much Should I Save for a Down Payment?
It’s no secret that we don’t like debt. That’s because car loans, student loans
and credit card debt can tie up our income, leaving us with less money for
the things we really want to do.
So how much should you save? That’s the million-dollar question! But don’t
worry. You won’t need anything close to one million dollars to set yourself on
the right track for buying a home. However, you do need to work through the
process below to arrive at your magic number.
We’ll use an imaginary family—the Clarks—in our example.
1. Determine how much you can afford each month. The rule of thumb is to
spend no more than 25% of your monthly take-home pay on your mortgage
payment. If you tie up too much of your budget in your monthly payment,
you leave yourself unprepared to face emergencies or embrace
opportunities. We find that 25% (or less!) is the sweet spot.
For the Clarks, 25% of their monthly take-home pay equals $1,050 each
month. Keep in mind that this number should include taxes and insurance,
escrow, and homeowner association fees.
Do the math: Write down how much money you (and your spouse, if
applicable) bring home each month. Multiple this number by .25 to find your
monthly mortgage amount.
2. Use your monthly mortgage payment to arrive at a total mortgage
amount. Let’s play around with Dave Ramsey’s Mortgage Calculator to see
what price range the Clarks should stick with.
When it comes to the type of mortgage you select, we recommend a 15-year
fixed rate, which is guaranteed to save you tens of thousands of dollars
compared with the traditional 30-year option.
We know the Clarks have $1,050 to spend on their monthly mortgage
payment. Using the mortgage calculator and its set interest rate of 3.66%, we
discover that they can purchase a $145,000 home with a 20% down payment,
a $130,000 home with a 15% down payment, or a $125,000 home with a 10%
down payment.
Do the math: Spend some time on our mortgage calculator. Input different
numbers into the home value and down payment section with the goal of
hitting your preferred total monthly payment. Make note of your options and
talk things over with your spouse, a trusted friend or family member.
3. Aim for between 10% and 20% for your down payment. If you haven’t
already, hone in on the percentage that works best for your family. Ideally,
you’ll choose to put down 20%, which can lower your interest rate, open you
up for a 15-year mortgage, and help you avoid private mortgage insurance
(PMI).
Let’s assume the Clarks decide to put down 20% on a $145,000 home. That
means they’ll need to set aside $29,000 for a down payment.
Do the math: Multiply the total mortgage amount by the percentage you
plan to put toward the purchase of a home. Now you’ve got your savings
goal! Circle it, post it on your fridge, and get ready to start saving!

What Other Costs Should I Consider When Saving for a Down
Payment?
Remember how we acknowledged that lenders aren’t exactly
our best friends?
Spoiler alert: Banks don’t just expect a down payment. They
also require you to pony up for other fees that might feel
hidden if you don’t know about them ahead of time. Let’s
cover those now, shall we?
Private Mortgage Insurance (PMI)
Short for Private Mortgage Insurance, PMI is a fee tacked on
to your monthly mortgage payment if you put down less than
20% on your home. You can count on PMI upping your
monthly payment by about $50 for every $100,000 you spend
on a home.¹
Appraisal and Inspection Fees
In order for your lender to sign off on your mortgage, you’ll
need to have your future home appraised and inspected. Each
of these can cost just over $300 on average.²³
Closing Costs
A lot of work goes into signing on the dotted line. And
unless the seller agrees to pick up the tab, you’ll be
responsible for fees between 2% and 5% of the total
mortgage value.⁴