Are you planning to buy a home? You’ll need to pay out at least part of your purchase up front. Saving for a down payment is an important part of the home buying process – and the size of your down payment can even impact how much of a mortgage you qualify for. But how much do you need to save?
Read on for our breakdown.
First of all, what is a Down Payment?
Your down payment is the amount of money you put towards the purchase of a home, which represents a part of the total payment. It is typically made in cash and the remainder of the payment comes from the mortgage loan.
Usually, you will be required to put up 20% down payment towards your home purchase, while some accept up to 10% down payment you may be lucky and find a lender to finance the entire 100% mortgage amount. It’s always best to ask the seller the minimum percentage they can accept.
Putting more money down against the purchase of your home has lots of benefits if you can save more the better. Some benefits of this include:
- Lower monthly mortgage payments
- Pay less in interest over time
So, how do you save for your down payment?
Follow these steps and start saving;
1. Get a Good Savings Account
A good savings account is one with a high interest rate. Look at High Interest Savings Accounts and Tax Free Savings Accounts .These all tend to be safe investment vehicles that pay higher interest compared to your average chequing accounts.
2. Set a Goal
Identify a neighborhood where you’d like to own a home and research the house prices in that area, this will help you come up with a rough idea of your ideal home value. If it’s Kshs. 12M, you need to save up about 20% of that. Now that you have a goal in mind, you can work backwards.
3. Start Saving Today
Start to make regular payments into your savings account. For example start with 50k a month and move up from there. But realize that if you only save this amount, (and your goal is 2.4M) it will take you roughly 4years to hit your target – 50k a month just won’t cut it.
4. Save your Cash Bonuses
A cash bonus is any cash you receive in a given year. This includes your tax return, an annual work bonus, a commission or even the money you got as a birthday or Christmas gift. Put all of these extra bonuses into your savings account and you’ll hit your goal a lot sooner.
5. Cut out the Small Stuff
For example, you can pack your lunch instead of eating out and cut your shopping budget in half. If you put all of the savings toward your goal, you’ll be surprised at how quickly it adds up.
6. Ask for Help
You may not have the luxury of going to your parents for some extra cash, but make it known to family and friends that you’re saving for a home. You might get cash in an envelope rather than gift vouchers to restaurants that you don’t even eat at.