Save For A Down Payment And Closing Costs

Although a mortgage spreads out the cost of buying a house over many years, you’ll still need to provide some money up front to pay for your down payment and closing costs.

Unless you’re getting a VA loan or a USDA loan – which don’t require a down payment – you’ll need to make sure you have funds saved for a down payment. The minimum on a conventional loan, like a 30-year fixed loan, is 3%. An FHA loan is available with a down payment of 3.5%.

Keep in mind, the larger the down payment, the more equity you’ll have, and the lower your monthly mortgage payments will be. By paying more up front, you’ll save on interest and be less likely to have to pay private mortgage insurance.

Along with your down payment, you’ll have to save money for closing costs (fees associated with processing and securing your loan). Although the amount you’ll need will vary depending on your loan amount and the tax requirements in your area, you can generally expect closing costs to be 3% – 6% of the purchase price.

To ensure you know exactly what you’ll owe, your lender will provide you with a Loan Estimate within three days of receiving your home loan application. This three-page form, which is required by law, will itemize the loan terms, projected payments and closing costs for your potential mortgage, so you are aware of precisely what you’ll need to have saved.