Tips for Saving for a Down Payment
October 10 2017
A recent survey found that 57 percent of Americans don't have $500 saved for an emergency. So how do you begin to save for a down payment, which can be as much as 20 percent of the cost of a home? The good news is there's no need to panic. There are steps you can take now to prepare for buying your dream home.
Where to Start
The first step is to figure out how much house you can afford. Here's a good rule of thumb: Your mortgage payment (including property taxes and insurance) should not exceed 28 percent of your pretax monthly income. If you're unsure how much your income will be when the time comes to buy, aim for 20 percent just to be safe.
How and Where to Save
Now that you know how much you should save, it's time to start storing up funds. Begin by setting up a separate savings account for the down payment. Financial experts recommend a low-risk "cash equivalent" account where you can easily access your money, such as a money market account, U.S. savings bond or FDIC-guaranteed bank account.
Once it's set up, schedule automatic deposits so you don't have to think about it. And look for areas where you can cut spending, such as going out to eat less or switching to a cheaper smartphone package.
We know it can sometimes feel that homeownership is out of reach. When that happens, remember to remain calm and stay on track. You could be living in your dream home before you know it.