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Buying a home: Saving for your down payment and closing costs

There are several factors impacting how much you'll need for paying closing costs and a down payment. Here's what you'll need to consider when saving for a home.

  • Home prices: How much you expect to pay for your next home serves as a foundation for determining how much you'll need to save. Housing markets fluctuate, so it's a good idea to keep up with market trends in the area where you're planning to buy.
  • Conventional or government-backed (FHA or VA) mortgage: Conventional mortgage lenders typically require at least 5% down (you pay mortgage insurance) if your credit is perfect and up to 20 percent down if it's just okay. If your home purchase price is $200,000, you might need a down payment of $40,000 plus closing costs of 3 to 6 percent. Government-backed mortgages require lower down payments (0-10%) and you'll pay mortgage insurance or funding fees. Free online mortgage calculators can help with estimating how much you'll need. Use a closing costs calculator for estimating closing costs.
  • Property taxes and hazard insurance costs: Your mortgage lender may require that your property taxes and insurance be added to your monthly payment; this is called impounding. Or you will have to set aside these amounts and pay those costs yourself.
  • Home repairs and emergencies: Living on a shoestring budget can lead to trouble when you're responsible for paying a mortgage every month. Owning a home also requires having cash on hand for repairs and maintenance (also known as "protecting your investment.") Requesting and shopping mortgage quotes online is helpful for finding your best mortgage loan terms; using a mortgage comparison calculator is good for identifying potential savings among several mortgage quotes.

A savings calculator can estimate how much you'll save based on your monthly deposit amount, how much time you have to save the money, and the annual percentage yield paid on your savings. Discuss your financial needs and goals with a professional financial advisor or accountant. They can provide guidance for choosing savings options along with estimating how much you'll need for buying and taking care of your next home.

 



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