Saving for a Mortgage Downpayment: Using a Mortgage Savings Calculator

Include all the parts of a down payment in your mortgage calculations. Make saving for your down payment part of your financial planning.

You have mortgage calculators and other tools for finding the best mortgage rate. Keep these three things in mind when saving to refinance or to take on a new home loan.

  • Down payment: With all of the changes in the housing and mortgage markets since 2008, the days of a low or no down payment are long gone. Making a 20% down payment, even if not required, remains a good idea. However, if you qualify for FHA financing, you can get away with putting as little as 3.5% down.
  • Closing costs: Allow at least a few thousand dollars for transfer taxes, title insurance, appraisals, and other expenses to complete the purchase transaction.
  • Reserve fund: Having (and keeping) about three months' worth of mortgage payments on hand enables you to cover mortgage payments and other costs in case of an income loss. Having those funds on hand also helps cover unplanned expenses once you receive the keys to your new home.

Earn More with Your Money While You Shop for Mortgage Rates

To save for such a sizable expense, you need a plan and a methodical approach. Use a savings calculator to determine how long it will take you to reach your goal.  Setting up a money market or high yield savings account helps you meet this objective.

A money market account earns a better interest rate than a checking account but slightly lower than a standard savings account. In return, it gives you greater flexibility than a savings account when you need to use those funds.

You might find the flexibility of a money market account especially valuable as the housing market changes. Even if the money could earn more in a CD, you may appreciate having the money readily available if your dream home suddenly becomes affordable.

Make Saving for a Mortgage or Home Refinance Automatic

You can make your saving relatively painless if you arrange an automatic deposit into the money market account at least every month.

  • If your employer offers direct deposit into more than one account, arrange to have a set amount deposited in the money market account when the rest of your pay is deposited in your checking account.
  • If you are self employed or do not have direct deposit, ask your banker to set up a regular, automatic transfer from your checking account to your down payment account.

Following these simple steps places you in a strong position as you make your mortgage calculations and prepare to take advantage of the housing market.

Posted By :
Dean Schermerhorn, MA, owner of Concise Communications, lives in Reno, Nevada. He has written for banking, health-care and manufacturing businesses and articles on finance and business topics.

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