Using simple mortgage calculators to help you save for a down payment

Saving for a down payment on a house is a big undertaking, but the effort is worth every pinched penny. Here are five tips to help you achieve your goal.

1. Use the affordability calculator.

Figuring out how much you can afford to borrow to purchase a home gives you an idea of home prices to target and how much you need to save for a down payment. Use the affordability calculator to get started. Enter how much you think you can pay each month for a mortgage, today's mortgage rate and the loan term, such as 15 or 30 years. The calculator estimates the maximum amount you can afford to borrow. That, plus a down payment is the home price to keep in mind when you go shopping.

2. Use the savings calculator.

How much should you offer for a down payment? A conventional loan requires 20 percent down, unless you add private mortgage insurance to your monthly payments. FHA loans require just 3.5 percent down, but it's a good idea to shoot for more. A bigger down payment improves your approval chances with lenders, lowers your monthly mortgage payments and provides a fatter cushion, lowering your chances of owing more than the home is worth if property values go down. Use the savings calculator to determine how much you can save by a certain date, given the amount you set aside each month.

3. Get the best interest rates.

Shop for the best interest rates on savings, and put your money in an account that provides quick and easy access to your cash. Savings and money market accounts are your best bets. CDs carry early withdrawal penalties if you take your money out before the maturity dates.

4. Make savings automatic.

Ask the bank to transfer money automatically from your checking to savings or money market account each month so you don't have a chance to spend it.

5. Cut back on extras.

Pay attention to how you spend money, and look for ways to trim costs. Simple steps, like brown-bagging it at work instead of going out to lunch, can add up to big savings over time.

Once you're close to reaching your savings target, use other mortgage calculators to help you through the home financing process. The prequalification calculator provides more detail than the affordability calculator about how much you can borrow, based on income, debts and other factors. Compare loan quotes with the loan comparison calculator, and estimate closing costs with the closing costs calculator.

Posted By :

Kay Maxwell is a freelance writer who specializes in mortgage and finance topics.

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