How to Save for a Down Payment on a House

When you start the process of buying a home, you’ll probably hear a lot about making a down payment. A down payment refers to the sum you pay upfront for your home, typically between 3%-20% of the home’s total value.  

While it might feel intimidating to save up such a significant amount of money, your down payment plays a crucial role in your homebuying journey. The more you can save, the less you’ll need to borrow, which means lower monthly payments and huge interest savings over the life of your loan. 

But saving up for your dream home doesn’t have to be a chore! In fact, it can be very manageable if you just have a clear plan for how you want to save. It starts with knowing what kind of mortgage you want to save up for, and Arkansas Federal offers a variety of mortgage options that have different down payment requirements (with some as low as $0 down!). 

Keep reading to learn how you can start saving for a down payment, and visit your nearest branch or talk with our mortgage lending team to learn more about your options. 

Why Saving for a Down Payment Matters 

Typically, it’s a good idea to allocate as much as you comfortably can towards your down payment. It might help lower your monthly mortgage payments, but making a higher down payment will also mean you may be able to avoid additional costs like Private Mortgage Insurance (PMI). It will also lower your principal, or the original amount of money you’re borrowing, which will mean you pay less interest over the life of your loan. 

How Much to Save 

Like we mentioned earlier, different types of mortgages will require different down payment amounts. If you know exactly what kind of mortgage loan you’ll need, you’ll have a better idea of how much you’ll need to save for your down payment. 

With a conventional loan, you’ll pay between 3%-20% of the home’s total value for your down payment. Conventional loans are not insured by the government, so if your down payment is less than 20%, you might have to pay Private Mortgage Insurance. This will be included in your monthly mortgage payments until you’ve paid down your loan enough that your PMI can be removed, so you’ll want to factor that into your budget when you’re considering making a down payment on a conventional loan. 

A loan like an FHA loan will work a little differently from a conventional loan because it’s insured by the Federal Housing Administration (or FHA), so it will require a lower down payment than some other types of home loans. FHA loans typically allow a lower credit score to qualify, but like with many other loans, your credit score will impact what your down payment will look like.  

Some loans, like VA loans and USDA loans, may allow a down payment as low as $0. You’ll have to meet certain eligibility requirements for either of these kinds of loans, which is part of the reason they’re able to offer such low down payment options. VA loans are reserved for veterans, active-duty service members, and their families, and USDA loans cover properties in designated rural areas. If you qualify, choosing one of these loans could help you pay less for a down payment, or skip paying one at all! 

How to Save Money for a Down Payment 

No matter what you’re saving up for, having a plan for how you’re going to save your money is important in trying to reach your goal. Everyone manages their money differently, so you may need to explore your options to find the savings method that works best for you – we’ve outlined a few of them for you here. 

• Make your money make money. High-yield savings and checking accounts offer a simple way to grow your money at a competitive interest rate. Money market accounts can also boost your savings beyond the national average, and certificates of deposit (CDs) allow you to lock in a higher interest rate on a set amount of cash for a specific period. 

• Automate your deposits. You can set up your direct deposits to put a portion of your income straight into your savings, or you can schedule deposits into your savings account each month. It’s an easy way to set aside money without having to think about it. 

• Cut unnecessary expenses. This might seem like a no-brainer when it comes to saving, but it’s important! Make an intentional budget, pay down debt, and lower recurring expenses where you can and allocate that extra money toward your savings. 

Other Costs to Save For When Buying a House 

A down payment is a big part of what you’ll need to save for when you’re buying a house, but it’s not the only expense. There are several other expenses you’ll need to plan for to ensure a smooth transition into homeownership. Here’s a breakdown: 

• Closing costs are the fees and expenses due at the final stage of the homebuying process, and they typically range from 2% to 5% of the home’s purchase price. They can include things like loan origination fees, home appraisal and inspection fees, title insurance, and more. 

• Maintenance is one of the major responsibilities of owning a home. Costs for maintenance can vary, but generally average 1% to 3% of your home’s value each year. These can cover things like routine repairs (think leaky faucets or broken fixtures), seasonal upkeep, or larger replacements for things like a roof or HVAC system over time. 

• Moving expenses can add up, especially if you’re relocating from a long distance. Costs can range from a few hundred dollars for a DIY move to several thousands to hire professional movers. 

• Unexpected emergencies can arise at any time, like damage from a storm or fire. It’s recommended that you keep an emergency fund of three to six months’ worth of living expenses to provide peace of mind and keep you from taking on debt. 

Start Saving for a Down Payment Today 

Saving for a down payment can seem stressful, but if you set a realistic savings goal and establish a plan to reach it, saving for your dream home is achievable. And the good news? You can start saving right now! Even setting aside just a few dollars every week will get you that much closer to homeownership. 

Everyone saves differently, and there are savings options out there that cater to every type of budget. Whether it’s reevaluating the way you spend each month or moving your savings to a high-yield account, you can find the savings plan that works best for you – and start working towards owning your dream home. 

Ready to get started? Our mortgage lending team is ready to help. Get in touch with them by visiting online, or stop by your nearest branch to learn more.