How Much Home Can You Afford? |
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The first step in saving up your down payment is to pin down the amount you can responsibly spend on a house. Lenders will typically limit your mortgage amount so that your monthly housing payments (including property taxes and insurance) will not exceed 28% of your pre-tax monthly income. |
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If you have a well-funded 401(k) account, you can borrow up to half the money and use that money as part or all of your down payment. You will have to pay the money back within five years, including interest, but at least the interest payments will go to you and not to some other creditor. |
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Come Up With A Savings Plan |
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Once you know how much you need to save, figure out how much you can set aside each month. That will also help you determine how long it will be before you'll have the full down payment. You can play around with a savings calculator to see how different time frames will affect your monthly payment requirements. |
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If 20% Down Just Isn't Possible |
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But if 20% down is not in the realm of possibility, there are programs that can get you into a house with a much smaller sum. For example, FHA programs let you pick up a mortgage with as little as 3-1/2% down if your credit score is at least 580. |
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