Planning a Down Payment for Your Home

Ever scroll through online home listings until your eyes are blurry, wondering, “How much house can I afford?” Home buying can be a formidable process, especially for new buyers. But it doesn’t have to be. Grab your blue light glasses, and let’s dig into what it takes to plan a down payment for your home. 

Answering the question of how to save for a house starts with figuring out how much you’ll need to save for the down payment, which is the amount of money you pay upfront toward the purchase of your home. The down payment typically ranges from 3% to 20% of the purchase price.

Read on to learn what goes into saving for a home, including how the down payment affects your monthly mortgage and how the down payment impacts how much home you can afford overall. You’ll also learn creative ways to save money for a down payment and how your local credit union can help you with financial education and favorable home-buying programs for credit union mortgages. 

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Take the Guesswork Out of Your Down Payment

Not knowing how much you’ll need to put down on a home can be a major stress factor when you just want to enjoy the excitement of buying a home. Take the guesswork out of the process with online calculators, such as this one from Freddie Mac, to figure out your potential monthly payment by changing up the variables that impact expenses. Such variables include: 

How Mortgage Type Impacts Down Payment

How much down payment money you need to accumulate as you save for a home may depend on what type of mortgage you choose. Here are common types of home mortgages and their typical minimum down payment percentages:

For the majority of home buyers who deposit less than 20% of a home’s value as a down payment, it’s important to know about private mortgage insurance. 

How Down Payment Affects Private Mortgage Insurance

Conventional wisdom on saving for a home is to accumulate enough to make at least a 20% down payment. In that case, those who plan on buying a $500,000 house would need to save $100,000 for a down payment. 

Sure, putting down one-fifth of the cost of your home will reduce your monthly payments and help you get a better interest rate on a mortgage. However, while a 20% or higher down payment may be ideal, saving that much can be difficult. In fact, the average home buyer provides a down payment of around 6% to 7% of the home’s value. 

When a homebuyer has a conventional loan and puts down less than 20% of a home’s value as a down payment, the lender will generally require private mortgage insurance (PMI). PMI protects the lender if you stop making payments on your loan. Typically, the homeowner must continue to pay PMI until the home's equity reaches 20% of the home's value.

However, not all lenders require PMI, even with a down payment that is less than 20% of the home’s value. Credit union mortgages, for example, are known for their flexibility in working with members to suit individual needs. So, it’s worth checking with your local credit union to see your available mortgage options. 

Ways to Save for a House

There is no magic bullet to saving for a house; as with anything, saving steadily over time is your best strategy. However, if you'd like to maximize the amount when you ask yourself, "How much home can I afford?", you can tackle saving for a home in two ways:

  1. Monthly savings approach. Figure out how much you can save monthly and then calculate how long you'll take to collect a down payment.  
  2. Deadline approach. Figure out when you want to have the down payment, and then calculate how much you need to save every month to meet that goal. 

The first option may take longer but allow you to live more comfortably, while the second option may require cutting a lot of spending to meet an aggressive timeframe.

Creative Ways to Save for a Down Payment

Whichever method you choose in saving for a home, you can take steps to speed up the process:

Home-Buying Assistance Programs

Home-buyer programs from government agencies and financial institutions, like credit unions, offer various services to help fund your home purchase. Qualification for such programs varies but often depends on factors such as income level, credit score, expense, and intended use of the home. Here are some programs that may be available to you:

Further Resources on Home Down Payments

Plenty of resources are available online if you're looking for more information on planning a down payment for your home. Check out these helpful and often interactive sites:

Enlist a Partner in Your Home-Buying Experience

Community-based credit unions often offer home-buying programs and can be an excellent resource for home-buying education and advice. Combined with leading rates on savings accounts and lower banking fees, they can be a great option for any home buyer.

Learning how to save for a house doesn't need to be intimidating. Credit unions are here to help you understand what you need to know, find the right mortgage for you, and set you on the path to homeownership. Use our Credit Union Locator to find out about a credit union home loan near you.

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Did you know?

Many credit unions offer home-buying programs with lower down payment options and flexibility in mortgage insurance premiums, ideal for first-time home buyers. Unlike large, shareholder-owned banks, your local credit union is built on personalized relationships with members where lower fees and interest rates reflect their not-for-profit, member-oriented approach. 

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.