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Financial Resource Center

Building Your Down Payment

Figuring out how much house you can afford often largely depends on what your monthly mortgage payments will be. There are also property taxes, insurance and upkeep, but your monthly payments are often one of the most important parts of your decision. But before you can figure your monthly payments, you need to determine the amount of your down payment. 

When getting a mortgage, most lenders will require a certain level of down payment. It can range from 5%-25% of the purchase price, however you can always put down more than what is required. The larger your down payment, the less you will have to borrow, the less interest you will pay, and the smaller monthly payment you will have. However, you should also remember that it may be nice to have some extra money available after you move into your new home. New carpeting, new furniture, or improving the landscaping all take money, so you should not stretch yourself too thin.

The fine line you walk when determining a level of down payment is based on the level of mortgage payments you can afford and how much money you have for the down payment. Mortgage rates are constantly changing and there are all different types of mortgages available.


Estimating your mortgage payments 

Below is a simplified chart showing monthly payment levels for different amounts at different interest rates. It reflects a 30-year fixed mortgage. Payments with a 15-year mortgage will be higher, but you will pay off the mortgage sooner and pay much less interest over the life of the mortgage. 


Monthly Mortgage Payments at different interest rates

(30-year fixed rate mortgage)

Mortgage Amount:     3.25%       3.50%       3.75%       4%       4.5%       5%

$50,000                   $217.60     $224.52    $231.56   $238.70   $253.34   $268.41

$75,000                   $326.40     $336.78    $347.33   $358.06   $380.01   $402.62

$100,000                 $435.20     $449.04    $463.12   $477.41   $506.69   $536.82

$150,000                 $652.81     $673.57    $694.67   $716.12   $760.03   $805.23

$200,000                 $870.41     $898.09    $926.24   $954.83  $1,013.37  $1,073.64

This chart is to be used for estimation purposes only; consult one of our mortage loan experts for actual values.


Accumulating a down payment

Here are some ways to consider to build funds for your down payment.

  1. Save. As simple as it sounds, most people end up saving for a couple of years to accumulate the amount needed. This may mean less or cheaper entertainment or dining out. One easy way to save is to enroll in an automatic savings plan at your financial institution. Have a certain amount transferred from your checking account to a dedicated savings account each month. 
  2. Borrow the down payment from your retirement plan. Many company sponsored 401(k) or profit sharing plans have provisions to let you do this. Check the details of your plan and consult with your tax-advisor. Your company's Human Resources or Payroll department may also be able to help.
  3. Consider a move. If you are currently renting, finding a cheaper apartment while you accumulate your down payment can help you reach your goal faster. If you are just starting out or are considering changing jobs, you may want to consider an area that has lower costs of living.
  4. Reduce other high interest rate debt. Paying off credit cards will take some of your savings, but you will not be paying the high rates usually associated with credit cards allowing you to save more in the long run.
  5. Look for a second job and save your earnings.
  6. Talk to your parents. Many parents are willing, or even anxious, to help their children with the purchase of a first home. Be respectful of their generosity.


Conclusion

Buying a home, especially a first home, is a big financial and emotional step. If buying a home is important to you, do your financial homework, investigate your mortgage options, determine what level of monthly mortgage payments will be affordable and comfortable, and be disciplined in saving for your down payment. We will be glad to help you figure out your options, contact one of our mortgage loan experts today for a free, no-obligation consultation.

 

Home Ownership