Mortgage Savings Calculators Help Plan for Down Payment

Online mortgage calculators help determine sales prices, loan amounts and down payments required for borrowers. What these mortgage calculators can't help you with is finding the sources of money for that down payment.

Mortgage calculators are wonderful tools for prospective homeowners. A mortgage prequalification calculator allow you to input your income, a home loan rate, the funds you have available for down payment and closing costs, and other debt--and return a sales price, loan amount, and estimated monthly payment.

A closing cost calculator will help you determine how much money you will need above down payment for closing costs of your new home purchase. As a rule of thumb, use 3% of your purchase price as the amount you will need for closing costs and funds to close. This is in addition to your down payment.


Ways to Fund a Down Payment

But where can you get these funds for down payment and closing? This is one function an online mortgage calculator cannot figure out for you. Here are some ideas for sources of down payment:

  • If you are planning on saving funds for down payment use a savings calculator to determine how much you will save in a specific period of time. Input your monthly savings deposit, estimated interest on your savings, and how long you have until you intend to purchase your home. Does it equal what you need for closing and down payment?
  • Check your 401(k) retirement account through your employer. Many have provisions for "hardship distributions" as defined by the IRS, allowing you to withdraw funds without penalty for the purchase of your first home. Many plans allow you to borrow from your 401(k) account and repay the balance through your regular pay period withdrawals. Check with your tax advisor for any tax implications that apply to you specifically.
  • Cut unnecessary expenses and transfer the expenses to savings. Sit down with a calculator and a record of your past months' expenditures to determine if there are monthly expenses that are luxuries or otherwise extraneous. Resolve to cut them these expenses but put the equivalent amount in your savings.
  • Let your family know you are planning on buying your own home and have created a savings plan to reach your target. Many first-time buyers are fortunate to have parents or other relatives who are willing to provide some assistance with a gift.

When saving funds for down payment and closing costs, be realistic. Make sure you have enough to cover down payment, all your closing costs, and any additional unexpected costs that may come up. Meet with your mortgage lender or broker early in the home loan process to get a Good Faith Estimate with a detailed total of funds you will need to purchase your new home.

Posted By :
Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped homeowners save millions of dollars refinancing their homes. Dennis has a degree in Economics and Political Studies from Pitzer College and is married with two children.

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