Trustpilot
Loading...
Loading...Loading...
I was reviewing a project timeline with our team, and someone mentioned their neighbor just gave up on buying a home because they "couldn't save 20% down." This keeps coming up in conversations, and honestly, it breaks my heart a little every time. The 20% down payment myth has convinced so many people that homeownership is out of reach when the reality is dramatically different.
The truth? In early 2025, first-time home buyers were putting down a median of just 9% on their homes. That's roughly $35,856 on a median-priced home of $398,400. Some buyers are purchasing homes with as little as 3% down, and eligible veterans can buy with absolutely nothing down through VA loans.
When we acquired certain processes in our operation, I learned something valuable in my Master’s of Social Work (MSW) program about breaking down overwhelming goals into manageable steps. That same systems thinking approach applies perfectly to saving for a home. You don't need to save $80,000 before you can buy. You might need $15,000, or $20,000, or even less depending on your situation and loan type. The key is understanding your actual target and having a solid plan to reach it.
Let's dig into practical, realistic strategies for saving for your down payment in this market, including some approaches you might not have considered.
Think of it like this: the amount you need to save depends entirely on three main factors working together, not some arbitrary 20% rule that doesn't actually apply to most buyers anymore.
The median down payment varies dramatically based on whether you've owned a home before. First-time buyers put down a median of 9%, while repeat buyers who can tap into home equity from a previous sale typically put down 23%. That's more than double, which makes sense when you think about it. If you're selling a $300,000 home you've owned for seven years, you're bringing significant equity to your next purchase.
Here's where people often miscalculate. Wait, let me clarify that point about total costs, because this trips up almost everyone during their first planning session.
Down Payment Your down payment can range from $0 to 20% of the purchase price, depending on your loan type. On a $400,000 home, that's anywhere from nothing to $80,000. Most conventional loan buyers need 3-5% minimum, which translates to $12,000-$20,000 on that same home. At AmeriSave, we work with buyers across the entire down payment spectrum, tailoring solutions to individual financial situations.
Closing Costs These typically run 2-5% of your total loan amount, not the purchase price. On a $400,000 home with 5% down ($20,000), your loan amount would be $380,000. Closing costs would then be approximately $7,600 to $19,000. According to 2025 data from Lodestar, the national average for closing costs including recording and taxes was $4,661. These cover appraisal fees, title insurance, loan origination charges, attorney fees, recording fees, and various other transaction costs.
Moving Expenses Local moves average $1,500-$3,000 when using professional movers, while DIY moves with rental trucks can cost $800-$1,000. Long-distance relocations typically range from $2,000 to $8,000 with professional movers, though costs can exceed $10,000 for larger homes or cross-country moves. During my family's last move, we underestimated how much it would cost to properly pack our home office equipment alone.
The "20% rule" comes from private mortgage insurance requirements, not from any actual lending standard that prevents you from buying a home. Let's take a deeper look.
When you put down less than 20%, conventional lenders typically require private mortgage insurance (PMI) to protect them if you default. PMI costs vary based on your down payment amount and credit score, ranging from less than 0.5% to about 1.86% of the loan amount annually. That annual fee gets broken into monthly payments added to your mortgage.
Here's a practical example: On a $300,000 loan with PMI at 0.85% annually, you'd pay approximately $212 per month extra. That's $2,550 per year. Is that significant? Absolutely. Does it make homeownership impossible? Not even close.
The critical piece most people miss is that PMI isn't permanent. For conventional loans, once you reach 20% equity through payments and home appreciation, you can request cancellation. Your lender must automatically terminate it when you hit 22% equity. Some homeowners eliminate PMI within just a few years as home values increase.
Government-backed loans handle this differently. FHA loans require mortgage insurance premiums (MIP) of 0.85% annually with just 3.5% down, but if you're putting 10% or more down on an FHA loan, your MIP expires after 11 years. VA loans charge an upfront funding fee that's typically rolled into your loan amount, but they don't require ongoing monthly mortgage insurance at all, even with zero down.
The minimum you need depends entirely on which loan program you qualify for. Here's the current landscape:
Minimum down payment: 3% for qualified first-time buyers, typically 5% for others
Example: $12,000-$20,000 on a $400,000 home
Best for: Buyers with good credit (typically 620+) and stable income
PMI required: Yes, until 20% equity reached
Minimum down payment: 3.5%
Example: $14,000 on a $400,000 home
Best for: Buyers with credit scores as low as 580, those with higher debt-to-income ratios
Mortgage insurance: Required upfront (1.75%) plus annual premium (0.85%)
Minimum down payment: $0
Example: No down payment required on any price point
Best for: Eligible veterans, active military, qualifying spouses
Mortgage insurance: None, but funding fee typically 2.15% for first-time use (can be financed)
Minimum down payment: $0Example: No down payment in eligible rural and suburban areas
Best for: Moderate-income buyers in qualified areas (typically outside major metro centers)
Mortgage insurance: Required but generally lower than FHA
At AmeriSave, we help you determine which loan type offers the best value for your specific situation, factoring in not just the minimum down payment but the total monthly cost and long-term financial impact.
Before you start saving, you need a realistic target. The housing market has shifted dramatically, and affordability looks different than it did just a few years ago.
As of early 2025, a family earning the national median income of $104,200 needed approximately 36% of their earnings to cover the mortgage payment on a median-priced home. That's well above the traditional 30% threshold that financial advisors recommend, which explains why housing affordability remains a major challenge nationwide.
The median mortgage payment for purchase applicants in February 2025 was $2,205. For FHA loan applicants, that figure drops to $1,907, while conventional loan applicants average $2,226 monthly.
Here's a rough framework to estimate what you might afford:
Example:
Getting prequalified gives you precise numbers based on your complete financial picture. This step takes maybe 20 minutes but can save weeks of looking at homes outside your range.
The first step is knowing exactly where your money goes each month. I don't mean a theoretical budget where you pretend you only spend $200 on food. I mean the real numbers.
Pull your last three months of bank and credit card statements. Calculate your actual spending in each category. You'll probably be surprised by the restaurant tab or how those $4.50 coffees added up to $135 last month. I know I was when I did this exercise while working on my budgeting unit in grad school.
The System That Works:
A budgeting app like YNAB, Mint, or PocketGuard can automate this tracking if you'd rather not manually categorize expenses. The key is consistency for at least 60-90 days to see accurate patterns.
One of the fastest ways to accelerate savings is reducing your biggest expense: housing. This doesn't mean living in a closet, but it might mean making strategic sacrifices for 12-24 months.
Could you move from a two-bedroom apartment to a one-bedroom and save $300-$400 monthly? That's $3,600-$4,800 per year directly toward your down payment. Could you relocate to a less trendy neighborhood with lower rents? Get a roommate in your current place?
I've seen countless people save their full down payment by downsizing temporarily. One team member moved back with family for 18 months, saved aggressively, and bought her first home at 27. Another couple moved from downtown Louisville to a suburb with lower rent, saving the $500 monthly difference. Eighteen months later, they had $9,000 toward their down payment plus additional savings from reduced transportation and entertainment costs.
You don't need to cut everything fun from your life. Pick one significant recurring expense and redirect it completely to your down payment fund.
High-Impact Targets:
The math gets powerful fast. If you're spending $480 monthly on takeout and redirect that completely to saving, you'll have $5,760 in one year, $11,520 in two years. That's enough for a 3% down payment on a $384,000 home.
When's the last time you asked for a raise? If it's been more than 18 months and you've been performing well, it's probably time.
The best moments to ask:
Preparation Strategy:
Even a 5% raise on a $70,000 salary adds $3,500 annually. Negotiating from $70,000 to $75,000 means an extra $292 monthly toward your down payment goal.
Sometimes your current employer simply can't or won't pay market rates. That doesn't mean you need to accept below-average compensation.
Browse job postings in your field on LinkedIn, Indeed, and industry-specific boards. What are similar roles paying? If you're earning $65,000 while comparable positions advertise $75,000-$80,000, you're leaving $10,000-$15,000 annually on the table.
Switching jobs remains the single fastest way to increase income for most professionals. According to research from ADP, job switchers in 2024 saw median pay increases of 7.7% compared to 5.5% for those staying put. Over time, that gap compounds significantly.
Use any findings as leverage for a raise with your current employer if you'd prefer to stay. Many companies will match competitive offers when faced with losing skilled employees.
The average American family of four spends approximately $4,500 on a typical vacation when factoring in transportation, lodging, meals, and activities. That's a substantial chunk of a down payment.
This doesn't mean you can't ever take time off. Consider these alternatives:
If you typically take two $3,000 vacations yearly and scale both down to $800 experiences, you've freed up $4,400 for your down payment. In Kentucky, we've got beautiful state parks that cost almost nothing compared to flying somewhere expensive. Meanwhile, families in Colorado can enjoy incredible mountain recreation without premium resort costs, and Florida residents have access to stunning beaches without traveling far.
The gig economy has made earning extra income more accessible than ever. The key is choosing something that fits your schedule and leverages skills you already have.
High-Return Options:
Even a modest side hustle generating $400 monthly adds $4,800 to your down payment fund annually. If you can dedicate 10 hours weekly at $20/hour, that's $800 monthly or $9,600 yearly.
The beauty of side income is that it's completely separate from your regular budget. Every dollar earned goes straight to savings since you're already covering living expenses with your primary income.
This might seem counterintuitive when you're trying to save, but hear me out. Your debt-to-income ratio directly impacts your ability to qualify for a mortgage and influences the interest rate you'll receive.
Lenders calculate your DTI by dividing all monthly debt payments by your gross monthly income. Most conventional lenders want to see DTI below 43%, though some programs allow up to 50%. If you're carrying high credit card balances, student loans, a car payment, and personal loans, you might already be pushing those limits.
The Strategic Approach:
Example Impact: If you're paying $350 monthly toward a credit card balance and pay it off completely, that $350 can now go toward your down payment. Over 18 months, that's $6,300 saved. Plus, you've improved your DTI, potentially qualifying you for better mortgage terms.
You probably own things that could generate monthly income with minimal effort.
Spare Room Rental If you have an extra bedroom, listing it on Airbnb or taking a long-term roommate can generate $500-$1,500+ monthly depending on your market. In Louisville, a spare bedroom in a decent neighborhood easily rents for $600-$800. That's $7,200-$9,600 annually toward your down payment. Similarly, cities like Nashville, Austin, and Portland see comparable rental rates for spare rooms, while smaller metros often offer $400-$600 monthly opportunities.
Check your lease or HOA rules first. Many have restrictions on short-term rentals, but long-term roommates are typically allowed.
Vehicle Rental If you work from home or have easy access to public transit, renting your car on Turo can generate $200-$800+ monthly depending on your vehicle type. Newer, well-maintained cars in popular categories (SUVs, trucks, fuel-efficient sedans) command premium rates.
One consideration: insurance implications and wear-and-tear. Turo offers insurance options, but verify how it interacts with your personal policy.
Parking Space Rental In urban areas where parking is scarce, your assigned spot could be worth $100-$300 monthly. Apps like SpotHero and JustPark facilitate these rentals. This works particularly well if you live near stadiums, event venues, business districts, or touristy areas.
Crowdfunding your down payment has become increasingly common and socially acceptable. Platforms like Zola, GoFundMe, and Honeyfund allow friends and family to contribute directly to your homebuying goal.
This approach works particularly well for:
Be aware that lenders have specific rules about gift money for down payments. Generally:
Different loan types have different gift rules. FHA loans allow 100% of your down payment to come from family gifts. Conventional loans typically require you to contribute at least 5% from your own funds if you're putting less than 20% down. At AmeriSave, we help you navigate these requirements and ensure all documentation meets lender standards.
If you're the type who struggles with impulse purchases (honestly, who isn't?), automation removes the decision-making entirely.
Setup Process:
Example Timeline: Target: $20,000 down payment in 3 years Monthly savings needed: $556 Automation: $278 transferred every other Friday (biweekly pay periods)
The psychological benefit is real. When the money never hits your checking account balance, you don't miss it. You build your budget around what remains after savings, not trying to save what's left after spending.
During grad school, I automated even just $200 monthly into a separate account I labeled "future house." Eighteen months later, I had $3,600 I'd essentially forgotten about because it happened automatically.
Americans now spend an average of $273 monthly on subscription services, according to research from C+R Research, with many underestimating their actual total by nearly 50%. The proliferation of streaming services, subscription boxes, software services, and app memberships creates real budget drain.
The Audit Process:
Common Subscription Categories:
Cutting $150 monthly in subscriptions saves $1,800 yearly, $5,400 over three years. That's 27% of a $20,000 down payment from eliminating services you barely use.
If you typically receive large tax refunds ($3,000+), you're essentially giving the government an interest-free loan throughout the year. That money could be building your down payment fund instead.
The Strategy:
Example: Current refund: $4,000 annually Reduced refund: $1,000 annuallyAdditional take-home: $3,000 ÷ 26 pay periods = $115 per paycheck Action: Increase automated transfer by $115 biweekly
This doesn't change your total tax liability. You're simply receiving your own money throughout the year instead of waiting for a lump sum refund. The benefit is that money earns interest in your high-yield savings account and is available for your down payment sooner.
Most states offer down payment assistance programs specifically designed to help first-time buyers, yet these remain dramatically underutilized. Many buyers simply don't know these programs exist.
Types of Assistance Available:
Eligibility Typically Requires:
The National Council of State Housing Agencies maintains a comprehensive database at NCSHA.org where you can search programs by state. Many programs offer $5,000-$15,000 in assistance, which could cover your entire down payment on a conventional loan with 3% down.
At AmeriSave, our team can help identify available programs in your area and guide you through the application process to maximize your eligibility.
House hacking involves purchasing a property and offsetting your mortgage through rental income. This strategy allows you to save for your next down payment while already owning your first home.
Common House Hacking Approaches:
Financial Impact Example: Purchase a duplex for $400,000 with 3.5% down (FHA loan allows this for owner-occupied multi-units) Your mortgage (principal, interest, taxes, insurance): $2,650 monthly
Rent collected from other unit: $1,500 monthly Your net housing cost: $1,150 monthly (vs. $1,800 renting a one-bedroom apartment)
You've immediately saved $650 monthly, and your renters are essentially paying down your mortgage principal and building your equity. After a few years, you can move to a larger home, keep the duplex as an investment property, and use its rental income to qualify for your next mortgage.
Once you know your target amount and have implemented several saving strategies, create a realistic timeline with specific milestones.
Step 1: Determine Your Target Amount
Step 2: Assess Current Position
Step 3: Calculate Monthly Savings Capacity
Step 4: Determine Timeline
Sarah and Tom want to buy a $375,000 home in Louisville:
Current position:
Monthly savings capacity:
Timeline calculation:
With this clear roadmap, Sarah and Tom know exactly what they need to do monthly and when they'll realistically be ready to buy.
Things happen in life. The repairs on the car will cost $1,200. The cat needs to see a vet right away. Your laptop dies just before a big project is due.
Keep a small emergency fund (even $1,000) separate from your savings for a down payment. This buffer stops you from taking money out of your down payment fund when things go wrong. After you buy your home, you can add to this fund until it has enough money to cover 3 to 6 months' worth of expenses.
In January, saving $30,000 over two years sounds great. By July, you want to use some of it for a trip. By November, you don't keep track at all.
Solution: Make a way to see how far you've come. You can use a savings thermometer app, a spreadsheet with milestone celebrations, or a chart on your fridge. Divide your goal into four parts, and at each 25% mark, give yourself a reward (but not money). Tell someone who will hold you accountable about your goal and check in with them once a month.
If your income changes from month to month, it seems impossible to set up regular automated transfers.
Instead of fixed amounts, use a system based on percentages. As soon as you get a payment, put aside 20–30% of it. You'll save a lot more in months when you make a lot of money. You can still make progress even when money is tight. To keep an eye on progress, keep track of a 3-month rolling average.
At the same time, you're trying to save for a down payment, pay off your student loans, save for retirement, and build an emergency fund. You're spreading your limited resources too thin, so everything is worse off.
Solution: Set priorities based on your values and the time you have. If you want to buy in two years, your down payment might be the most important thing, and you should make the smallest payments possible on other things (except for employer 401k matching, which is free money you shouldn't leave on the table). After you buy, focus on other things. Going after one goal at a time often gets you more than going after everything at once.
I want to go back to the myth about the 20% down payment that I talked about at the beginning of this article because it is important. Too many people put off buying a home for years because they are chasing an unnecessary goal and home prices are going up faster than they can save.
On a personal level, owning a home isn't just about making money or making a smart investment. It's about having a stable home for your family, being able to paint the walls any color you want, knowing that your rent won't go up next year, and making a home in a community. Those things are worth more than what is shown on a balance sheet.
In my MSW program, we learn about how stable housing affects all parts of life, including children's education, mental health, community ties, and even physical health. When families find stable housing, everything else becomes easier. That doesn't mean you should buy a house you can't afford or go over your budget, but it does mean that waiting until you've saved $80,000 might not be the best thing for you if you can buy responsibly with $15,000.
In early 2025, the average mortgage payment was around $2,205. That's a lot, but so is rent in most places. The difference is that your mortgage payment builds equity, but rent just goes away. That equity growth over five, ten, or fifteen years adds up to hundreds of thousands of dollars in wealth.
We help buyers with all kinds of financial situations at AmeriSave. Some put down 20%, while others use 3% down conventional loans, FHA, VA, and USDA programs. Our digital tools make the process clear and easy to understand, and they give you up-to-date information about your qualifications and options. We don't want to force anyone to buy something they aren't ready for. We're here to help you figure out what you can really do based on your own situation.
If you've been saving for years and still think owning a home is impossible, I suggest you at least look into your real options. Even if you don't plan to buy for another six months or a year, get prequalified. Knowing how much money you really have to spend could surprise you and change your plans.
You shouldn't base your down payment goal on old rules that don't apply to most buyers anymore. Instead, you should base it on your loan program options and your current financial situation. You can own a home if you save wisely, take advantage of available assistance programs, and get the right loan.
Your income, savings rate, and target amount will all have a big impact on the timeline. In early 2025, the median down payment for first-time buyers was $35,856. If someone saved $1,000 a month, it would take them about 36 months to reach that goal. If that same person wants to put down only 3% on a $350,000 home, they only need $10,500, which cuts the time frame to about 11 months. The most important thing is to set a realistic goal based on the loan programs you can get, not to think you need a lot of money. Many buyers use more than one strategy at the same time to speed up their timeline. Using automated savings, side income, cutting costs, and down payment assistance programs together can cut the time it takes to save in half compared to just saving on your own.
This choice depends on the state of your local market, the current interest rates, and your own financial situation. If home values are going up quickly, buying sooner with a smaller down payment can mean getting more appreciation than the cost of PMI. For instance, if homes go up in value by 6% each year and PMI costs you 0.85% each year, you will be better off buying sooner. In stable or declining markets, though, it makes more sense to save up more money for a down payment to avoid PMI and lower your monthly payment. The current mortgage rates also play a big role in this choice. When interest rates are high, putting more money down on your loan can help you save a lot of money each month. In a competitive market, a bigger down payment makes your offer stronger and lowers the risk of being in debt for more than your home's worth if prices drop unexpectedly.
Different types of loans have different credit score requirements, which affect your choices. Most conventional loans require a minimum credit score of 620 and a down payment of 3% to 5%, but some lenders require higher scores. You can get an FHA loan with a score as low as 580 for 3.5% down, or even 500–579 for 10% down. The VA doesn't have an official minimum score requirement for VA loans, but most lenders want at least 580–620. Most of the time, USDA loans need a score of 640 or higher. In addition to qualifying, your credit score has a big effect on your interest rate. A score of 680 or 760 can mean interest rates that are 0.5% to 0.75% higher, which can add up to tens of thousands of dollars over a 30-year mortgage. Before you start looking for a house, check your credit reports for mistakes, pay off your credit cards so that they are less than 30% of their limits, and don't open any new credit accounts for at least six months before you apply.
Yes, but only under certain conditions and with possible consequences. First-time homebuyers can take out up to $10,000 from a traditional IRA without having to pay the usual 10% early withdrawal penalty. However, you will still have to pay income tax on the money. If you're married, both of you can take out $10,000, which means you can get $20,000 total. You can take money out of your Roth IRA at any time without paying taxes or penalties because you already paid taxes on that money. Some 401k plans let you take out money or borrow money to buy a home, but the rules are different for each employer. The biggest downside is the opportunity cost, which means that money loses decades of potential compound growth. If someone takes out $10,000 at age 30, they will have about $70,000 to $100,000 less at retirement, assuming average market returns. Only think about this option after you've tried all the other ways to get help with your down payment, like gifts and programs that don't put your retirement at risk.
This is a common problem once you own your own home. Your interest rate, other debts, and financial goals will all affect the answer. If your mortgage interest rate is higher than 6%, paying extra principal will give you a guaranteed return equal to that rate, which is usually better than stock market returns when you take risk into account. But if your rate is less than 4% to 5%, you might get better returns by putting that money into taxable investment accounts or tax-advantaged retirement accounts. Also, think about your other debts. Paying off credit cards with a 22% APR is a better way to get more money than making extra mortgage payments. Don't forget about your need for cash flow. It's not easy to get back the money you put toward your mortgage principal unless you refinance or open a home equity line of credit. Most financial experts say that before making big extra mortgage payments, you should build up a fully funded emergency fund that can cover six months' worth of expenses. This is because you can't get that equity back without fees and approval if something goes wrong.
Most down payment assistance programs have rules that can affect your mortgage, but the trade-offs are usually worth it. Many programs only work with certain lenders, but AmeriSave works with a lot of different help program administrators. Some programs add a second mortgage to your loan. This second mortgage may have a low interest rate or no interest rate at all. After you've lived in the home for a certain amount of time, usually five to ten years, the loan may be forgiven. There are often income limits, and you usually can't qualify if your income is more than 80% to 120% of the median income in your area. Most of the time, you'll need to take a homebuyer education course (which usually lasts 6 to 8 hours and is often available online) and promise to use the home as your main residence, not as an investment property. Some programs offer homeownership counseling that really helps you understand money better and lowers your risk of default. Most of the time, the benefits are greater than the restrictions. For example, getting free or low-cost money for your down payment means lower monthly payments, smaller loan amounts, and maybe even no PMI at all if the help brings you to 20% equity.
This worry stops a lot of buyers from going through with the deal, especially those who are thinking about options with a low down payment. If home prices drop soon after you buy them, you could be "underwater" or "upside down," which means you owe more than the current market value of your home. This is mostly important if you need to sell quickly because you would need to bring cash to closing to make up the difference between your loan balance and the sale price. But if you plan to live in the house for at least five to seven years, temporary changes in price don't matter much. Real estate usually goes up in value over time, and you're also paying down the principal each month. Even if values drop by 10% at first, continued principal reduction and a market recovery usually bring equity back to where it was within a few years. To keep yourself safe, don't stretch your budget to buy at the very top, keep an emergency fund for mortgage payments during times when your income drops, and don't plan to flip or sell within the first few years. We learned from the 2008 housing crisis that leverage is risky. However, we also learned that homeowners who could make their payments and stayed put eventually got better.
Yes, and millions of people who borrow money do just that. Student loans change your debt-to-income ratio, which lenders use to figure out how much mortgage you can afford. Your lender adds your proposed mortgage payment, property taxes, insurance, HOA fees (if you have them), and any other debts you have to your minimum monthly student loan payment. To find your DTI, divide this total by your gross monthly income. Most traditional lenders will let you have a DTI of 43% to 45%, but some government-backed programs will let you have a higher ratio. If your student loan payments are high compared to your income, you might not be able to get the mortgage you want, but you're not automatically disqualified. Some strategies work. For example, income-driven repayment plans can lower your monthly payment, which will help your DTI. If you pay off other debts, like credit cards or car loans, you can get a bigger mortgage. Getting a raise or doing extra work on the side can also help your ratios. Many first-time buyers have student loans, and lenders know that this is a normal part of modern life.
People used to say that you should plan to stay for at least five years to make up for the costs of the transaction and build enough equity, but that timeline has become less strict in today's market conditions. Your break-even point depends on your specific purchase price, down payment, closing costs, appreciation rates, and what you'd pay for equivalent rent. When you buy a home, closing costs are usually 2–5% of the purchase price. When you sell, costs (mostly real estate commissions) add another 5–6%. That adds up to $28,000 to $44,000 in transaction costs for a $400,000 home. Before you can sell, you need to get enough appreciation and principal reduction to cover these costs. That could happen in three years if the markets keep going up quickly. It could take seven years in stable markets. If rent for similar homes is $2,200 a month and your mortgage payment is $2,400 a month, you're paying $200 more a month to own the home. That's $12,000 over five years, but you're also building equity by making principal payments and, hopefully, the value of your home will go up. If you think you might have to move for work, think about whether you'd be okay with turning your home into a rental property if you had to. A lot of people are able to keep their first home as a rental property, which brings in money that helps them buy their next home.
This is one of the most important things to think about when buying a home, and we talk about it a lot in project planning meetings. Don't take all of your savings out of your account to make a down payment, even if it means putting less down or waiting a few months to buy. You should still have at least $5,000 to $10,000 in cash on hand after closing, and more is better. Owning a home comes with costs you didn't expect, like when the roof leaks, the water heater breaks, or the fence falls down in a storm. You can't wait until your next paycheck to make these repairs, and you don't want to put them on credit cards with 22% interest. Most financial experts say that you should set aside 1–2% of your home's value each year for repairs and upkeep. That's $4,000 to $8,000 a year for a $400,000 home, but costs don't spread out evenly; they tend to cluster. You still need your regular emergency fund for things like losing your job, getting sick, fixing your car, and other unexpected life events, even if you don't need to fix your house. Try to save enough money to cover your costs for at least three to six months. If you have to choose between a slightly larger down payment and keeping your emergency savings, choose the savings. It's worth paying a little PMI until you build equity for the peace of mind and financial security.
Self-employed buyers need to provide more paperwork, but they can still get mortgages if they make the right down payments. Most lenders want to see two years' worth of tax returns, profit and loss statements, and sometimes even statements from the business's bank account. If your income went up over those two years or you had a slow first year, it can be hard for them to average it out. The most important thing to remember is that lenders look at your taxable income, not your gross revenue. If you write off a lot of business expenses to lower your taxes, you're also lowering the amount of income that lenders can use to determine whether you qualify. Some self-employed borrowers can show higher income by lowering their deductions in the year or two before they apply. There are bank statement loan programs for self-employed buyers who can't show proof of income in the usual way. These loans usually require bigger down payments (10–20%) and have slightly higher interest rates. It makes the process a lot easier to work with lenders who are used to working with self-employed borrowers because they know how to set up your application for approval.
Fact Checked
