Saving for a downpayment is one of the first steps to buying a home --apart from getting pre-qualified for a mortgage. Starting your savings also requires quite a bit of commitment. It takes discipline to forgo that weekend getaway with friends or reduce everyday purchases like your usual morning latte. But when you're saving for a house, every purchase and dollar saved must be a deliberate choice.
But where's the best place to store your home-savings nest egg? After all, you'll be saving in the tens of thousands, not just a couple of thousand. Lenders will also need to verify where your downpayment came from, meaning they'll want to see a record of deposits that prove your savings efforts or gifted funds.
Here are some suggestions for where to store your downpayment:
There isn't a specific amount, per se, but there is a general percentage that you should be aiming for. For conventional loans and to avoid paying private mortgage insurance (PMI), you'll want to save at least 20% of the asking price. So for a $250k home, you want about $50k for the downpayment. Add a little more for closing costs and moving in necessities (like truck rental, home repairs, or appliances), and you'll have a comfortable cushion for all your new home needs.
It may seem like an extraordinary amount, but putting 20% down (if you are able) can save you thousands of dollars over the life of the mortgage loan.
But 20% down isn't the only option! You can put down less (and pay for PMI) or apply for a government-backed loan.
With FHA, USDA, and VA loan options, prospective homeowners can buy a home with a downpayment with much less. So for that same $250k house, you could put down under $9k with an FHA or $0 with USDA and VA loans (must meet specific criteria, please contact us for more info).
The first thing to consider when looking into the various savings accounts is that it must be easily accessible, both to withdraw and to deposit. And ideally, you'll want an account that earns at a reasonable rate while remaining stable in value as well. Here are some account types to consider for your home downpayment savings.
The most obvious place to save your downpayment is where you bank. If you don't already have a savings account, opening one should be relatively easy, and transferring funds is just as simple. While a basic savings account is a secure place, thanks to FDIC insurance or NCUA for credit unions, the interest rates for earning are meager.
Still, it's a very good and quick option for starting your nest egg.
High-Yield Savings Account
Another option for storing your downpayment is a high-yield savings account. This attractive option can earn as much as 10 times more than standard savings accounts while offering the FDIC or NCUA safety net. Something to keep in mind with especially high-yielding accounts is that you'll likely be charged income tax on the interest earned. This isn't necessarily a bad thing --just something to note. However, the honor of the highest yielding savings accounts goes to other investment options.
The highest-earning, as well as the riskiest type of account that you can store your downpayment, is an investment account. This type of account invests your funds in stocks and mutual funds and have the potential of earning significantly. It's no secret that the stock market is volatile, and adequate returns are usually realized over longer terms.
Considering this, investing a house downpayment in the stocks and mutual funds is best for those who are flexible and can "ride out" any downturns in the market.
For the sake of convenience and safety, a standard savings account would suffice. If you can handle the risk for the potential of a generous payout, investing is worth looking into. Whichever you choose, make sure it aligns with your long and short-term goals for buying a home.
Starting a savings is one of the first steps towards homeownership. Getting pre-qualified is another! Find out how much you can afford and which loan programs are available to you by contacting us. Use the online form or give us a call -- we're here to serve you online and in-person.
We've been helping customers afford the home of their dreams for many years and we love what we do.
Company NMLS: 19161
Registered Mortgage Broker-NY State Department of Financial Services NMLS #19161
7448 Amboy Road
STATEN ISLAND, New York 10307
Phone: (718) 356-2900
Our Website strives to ensure that its services are accessible to people with disabilities. Our Website has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Our Website makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows richmondcountymortgage.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
The Our Website accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Our Website continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Our Website website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Our Website website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: firstname.lastname@example.org