Buying a home is a major financial commitment and a huge life decision. But for many homeowners, there's one particular part of the process that can be especially challenging.
According to the National Association of Realtors (NAR), a substantial number of would-be homeowners -- and especially first-time buyers -- find that saving up a down payment is the most difficult aspect of becoming a homeowner.
Keep reading to learn more and for ways to make saving up for a down payment easier.
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Saving up a down payment is a consistent challenge
In 2019, a total of 13% of all home buyers indicated that the hardest part of purchasing a home was saving up enough money to put down for a home. During that same year, more than one in four first-time buyers (26% in total) described saving up a down payment as the most difficult task.
Traditionally, lenders required a 20% down payment in order to become eligible for a mortgage to purchase a home. This is no longer the case for many home buyers, as it's possible to purchase a property with 10% down or even less in some cases. In fact, it may even be possible to buy a house with zero down payment. Some of the mortgages that require a low or no down payment include:
Still, saving up even a small down payment can be a financial burden, especially in areas where home prices are very high. If you're trying to buy a $300,000 home and you need even a 10% down payment, that would mean saving a whopping $30,000. And if you live in a market where the lowest priced homes are upwards of $600,000 or $700,000, then you'd really be looking at a lot of money.
While current homeowners can often sell their homes for more than they owe on their existing loan in order to come up with the down payment, this is not an option for first-time home buyers. That explains why over a quarter of people who have never owned a home before believe that saving up a down payment is so challenging.
Of course, the down payment requirement has consistently been an issue for millions for a long time. NAR data shows that since 2012, at least 12% to 13% of buyers have described down payments as their biggest hurdle to homeownership.
How can you make saving up a down payment easier?
Unfortunately, there's no fast and easy way for most people to save tens of thousands of dollars. But there are some steps you can take that may help you build up your down payment funds more quickly and with less stress. This could include:
- Living on a budget that prioritizes down payment savings. By deciding in advance how much to save for your down payment each month and making a budget centered around that, you can amass the money you need sooner.
- Automating the process. If you've budgeted to save a certain amount for your down payment, set up automatic transfers of the money on payday. And make sure that money is moved out of your checking account and into a separate "house" fund held in a high-yield savings account so you'll know the money is being saved.
- Putting windfalls toward your down payment. If you receive a tax refund, any cash gifts, stimulus checks, or other unexpected income, put it directly into your down payment fund.
- Considering a side gig. If you can do a little overtime or a few extra hours of work per week or per month, you can add that money to your down payment fund so you can buy a house sooner rather than later.
You can also look to see if you qualify for any down payment assistance programs. Whatever you decide, make sure you know how much house you can afford and are fully informed about what size down payment makes sense for your situation.
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July 11, 2021 at 09:00PM
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Nearly 1 in 4 First-Time Home Buyers Say This Is the Most Difficult Part of the Process - The Motley Fool
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