Accumulating a Down Payment on a Home

How expensive a house you can afford largely depends on the level of your monthly payment. There will be property taxes, insurance, and upkeep, but your monthly payment will probably be the most important part of your decision.

The fine line you walk when determining a level of down payment is based on the level of mortgage payment 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 payment

Here is a chart showing monthly payment levels for different amounts at different interest rates. It reflects using 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.

Accumulating a down payment

Most lenders require certain levels of down payments to consider you for a mortgage. It often ranges from 5 percent of the purchase price to 25 percent. The larger the down payment, the more comfortable they will probably be giving you the mortgage. However, you should also remember 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. You should not stretch yourself too thin.

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

1. Save. As simple as it sounds, most people end up saving for a couple of years to accumulate the needed amount. This may mean less or cheaper entertainment or fewer meals out. One easy way to save is to have a certain amount transferred from your checking account to a dedicated BB&T eSavings account each month. Your down payment can grow even more quickly with a certificate of deposit (CD), such as a BB&T Add On CD, which allows you transfer a set amount to it each month.
2. Borrow the down payment from your retirement plan. Many company-sponsored 401(k) or profit-sharing plans have provisions to let first time homeowners do this. Check the details of your plan. Your human resources or payroll department can help.
3. Move. Living in a cheaper apartment while you accumulate your down payment can help you get your money faster. Cheaper rent may balance out a longer commute to your job. If you are just starting out or are considering changing jobs, you may want to consider an area that has a lower cost 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 found with credit cards. At minimum, transfer balances to a credit card with a lower interest rate.
5. Make a deal with the seller. Sometimes a seller is willing to help sell their home by taking a second mortgage for part of the purchase price. Be careful if you are considering this, and make sure a qualified attorney looks at all the documents.
6. Sell some of your investments.
7. Get a second job and save your earnings.
8. Skip a year's vacation.
9. Borrow from your parents. Many parents are willing, or even anxious, to help their children with the purchase of a first home. Many loan programs will allow down payment gifts to come from family, a spouse, domestic partner, or nonprofit agency.

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 homework. Investigate your mortgage options. Determine what level of monthly mortgage payment will be affordable and comfortable. Use some discipline to save your down payment.