Saving up enough money for a down payment on a house can be a daunting task. With today’s housing market, most lenders require a 10 to 20 percent down payment. That means you’ll need to bring tens of thousands of dollars to the closing. Eek!

The best way to save up enough money for a down payment is to make a plan, make it early and stick to the plan. Here are some things to consider when saving for a down payment for a house.

Do Your Research

The first step is to thoroughly research your own finances and then figure out how much money you need to save. Using online services like Bankrate’s Mortgage Calculator can be helpful tools when trying to get an idea of monthly payments. It’s smarter to go through your finances and figure out what you can afford before looking into house features you want.

Determine a Timeline

Once you have figured out approximately how much you need to save for a down payment, you can begin to estimate how long it will take to save it. By now, you should be able to determine how much money you can set aside each month. From there, figure out how long it will take to save up your goal down payment. Don’t let the amount of time deter you.

Create a Strict Budget

This is a time in your life when living frugally will pay off tremendously. It will take a lot less time to save up the money if you are able to set aside more of it every month. Reassess your current budget and your current lifestyle, and find places to trim the fat. Substitute a cup of Folgers for Starbucks, bring your own lunch to work instead of eating out every day, or even start couponing.

Keep Your Down Payment Money Separate

Keeping all the money you’re saving for a down payment separate from your normal checking or savings account is a very good idea. You don’t want to be tempted to use it and you certainly don’t want to mix it up with your spending money. Many people open up a high yield savings account. It’s an easy way to keep track of your progress. If you’re a first-time home buyer, investing your money in an IRA account is also good move. Your money will accumulate interest toward your retirement and you can withdraw up to $10,000 without paying for it later.

Use Opportunities Provided by the Government

There are many government incentives out there to encourage home buyers. Agencies to look into are the Federal Housing Administration and Veteran’s Administration, along with state housing authorities.

Increase Your Down Payment or Pay Down Debt?

This is probably one of the biggest questions most people have when saving for a down payment. The answer is very circumstantial, but there are guidelines to follow.

Generally speaking, it’s better to put that money towards paying off debt rather than putting it towards a larger down payment. Here’s an example so you can see the difference:

A couple brings in $80,000 annually and has no debt. They have $40,000 saved for a down payment and were approved for $350,000. They found a $390,000 house that they loved. Now let’s say they have a $500 student loan payment every month. The amount they were approved for dips down to $300,000. That means the couple would have to put down an additional $50,000 to be able to afford the same house.

This is a very basic model, but it would make more sense for the couple to pay off the student loan than trying to save $50,000 more for a down payment. But, this gets iffy when dealing with Private Mortgage Insurance (PMI). You are required to pay PMI if you do not put down at least 20{447216cae66a4d332ab0ac71eb11e27716218036a4f422ac40162b059a195e14} of the purchase price. If it means not paying PMI, sometimes it’s better to put more money down rather than pay off other debt. Meet with a banker to go over your situation, and then come up with a plan.

Saving up money for a down payment is a long process. You need to start planning early and stay committed. Set small goals, be patient, and watch your savings grow!

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