Housing affordability is currently at an all-time high. This means that the relationship between mortgage rates, property values and median household incomes have never been in more perfect harmony for the consumer up until now. However, home buying is still a major financial undertaking, so it's important to make sure you are in a good position prior to applying for a mortgage.
In today's housing market, cash is king. This means that you should try to save as much as you can before making a down payment. The bigger your initial payment, the less a lender will have to finance for you to make the purchase. This can result in lower rates and better overall terms on the home loan.
How much should you save?
Generally, it's advised to save between 10 and 20 percent for a down payment. By having less than 10 to 20 percent of a home's purchase price, some experts say that you can't realistically afford the property and are prematurely buying before you have demonstrated an ability to save money.
What if you have less than 10 percent?
If you have less than 10 percent of your down payment, there are a number of options for some households. This includes FHA and VA home loans. Mortgages backed by the Federal Housing Administration are intended for lower-income families, and you can qualify for a loan with a sub-10 percent down payment if you meet certain credit standards. Meanwhile, if you are a current or former member of the military, capitalizing on your benefits with a mortgage backed by the Department of Veteran Affairs is one of the most affordable options to homeownership in the nation.
How do you start saving?
Nowadays, a majority of households end up breaking even every month on the relationship between their incomes and expenses. To start saving for a down payment, you may need to make sacrifices and cut back on your spending habits in certain areas. Depending on your income, it's generally recommended to try and save between 10 and 30 percent of your monthly income. The sooner you start putting this cash into a savings account, the sooner it can start to collect interest, which could further speed up the time it will take you to save for a down payment.
