Accumulating a Down Payment on a Home
The size of your down payment on a home is the most important factor in determining your monthly payment. Unlike interest rates, property taxes and insurance rates, you decide how much you borrow and therefore how large your monthly mortgage payments will be.
Estimating your mortgage payments
Here is a chart showing examples of monthly payments for different amounts at different interest rates. The examples are based on a 30-year fixed mortgage. Payments with a 15-year mortgage will be higher, but you will pay off the mortgage sooner and pay much less interest over the life of the mortgage.
| Monthly Mortgage Payments | ||||
| (30-year fixed rate mortgage) | ||||
Mortgage amounts |
6.5% (rate) |
7% (rate) |
7.5% (rate) |
8% (rate) |
| $50,000 | $316.03 | $332.65 | $349.61 | $366.88 |
| $75,000 | $474.05 | $498.98 | $524.41 | $550.32 |
| $100,000 | $632.07 | $665.30 | $699.21 | $733.76 |
| $150,000 | $948.10 | $997.95 | $1,048.82 | $1,100.65 |
| $200,000 | $1,264.14 | $1,330.60 | $1,398.43 | $1,467.53 |
| The rates represented are examples and not reflective of actual rates. Please refer to the Kitsap Credit Union Home Loan Department for information on current rates. | ||||
Accumulating a down payment
Most lenders require certain levels of down payments (often anywhere from 5% to 25%) to consider you for a mortgage. The larger the down payment, the more comfortable they will most likely be in providing you the mortgage loan.
Here are some ideas to consider:
- Save. Most people save for a couple of years to accumulate a down payment. This may mean less or cheaper entertainment or less dining out. One way to save is with an automatic savings plan at your financial institution. Have a certain amount transferred from your checking account to a dedicated savings account each month.
- Borrow the down payment from your retirement plan. Many company sponsored 401(k) or profit sharing plans have provisions to let you do this. Check the details of your plan.
- Move. Live in a less expensive apartment while you accumulate your down payment. If you are just starting out or are considering changing jobs, consider an area with a lower cost of living.
- Reduce other high interest rate debt. Paying off credit cards will take some of your savings, but you will not be paying the high rates usually found with credit cards.
- Make a deal with the seller. Some sellers may take a second mortgage for part of the purchase price. Be careful if you are considering this and make sure a qualified attorney reviews at all the documents.
- Sell some of your investments.
- Get a second job and save your earnings
- Skip a year's vacation.
- Borrow from your parents. Many parents are willing, or even anxious, to help their children with the purchase of a first home. Be respectful of their generosity.
Conclusion
Buying a home, especially a first home, is a big financial and emotional step. Do your financial homework. Investigate your mortgage options. Determine what level of monthly mortgage payments will be affordable and comfortable. Use some discipline to save your down payment.
Call one of our Home Loan Center representatives today for more information. 360-662-2266, or toll-free nationwide at 1-800-422-5852
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