“Take 20% of the cost of the home you can afford and you’ve got your savings goal.”
But buying a home is easier said than done. During the housing boom of the mid-2000s, almost anyone could buy a home with zero money down. Today, it’s a different situation, as lenders have gotten much pickier. The best loans with the lowest interest rates go to people with steady incomes, great credit scores, and that magic down payment of 20%. On a $250,000 home, the down payment would be $50,000. That’s a lot of money.
You might be able buy with less than 20% down, but your interest rate will likely be higher, adding thousands—even tens of thousands—to the total cost of the loan. You also may be required to buy private mortgage insurance, which is typically 1% or more of the loan amount each year. If you could only swing a $20,000 down payment and had to take out a $230,000 loan, your mortgage insurance would be a minimum of $230 a month. Continue reading 6 Steps to Save for a Home