budget · debt · finances · goals

Saving a 20% Down Payment

 

Living in Massachusetts can be expensive especially with the median house price for current listings right around $419,000. That number is huge and with the way the housing market is right now, it doesn’t seem like it’s going down anytime soon. I have been a renter for about 9 years and I’ve thought about becoming a homeowner for quite some time now. I’ve put it on the back burner because my top priorities were to pay off my debt and save up an emergency fund before I started saving for a home. Now that those two goals have been achieved, I can move onto saving for my first home!

So, of course I am beyond nervous and don’t really know what to expect with the whole process. I’ve asked people for advice, but I think it’s one of those things that you just have to figure out while you’re in the midst of it because it can be a different experience for everyone.

What I do know is that I will need lots of money in order to purchase this dream castle home of mine. The goal is to save up 20%.

I came to this conclusion after I had a heart to heart conversation with one of my best friends. Not only is she my best friend, but she is also my accountability partner. Her and I see eye to eye on a lot of things especially when it comes to finances. I mentioned to her how eager I was to buy a home, but she made me realize that I am not financially ready right now. I have money saved up, but not enough. I needed a goal to work towards. A certain dollar amount that I would be comfortable with. We both agreed that the 20% down payment is the smart thing for me to do.

The benefits of putting 20% down payment are:

1. No Private Mortgage Insurance (PMI)

PMI is typically required with a conventional loan when there is a down payment of less than 20%. This premium is added onto your monthly mortgage payment. The banks require this in order to protect themselves in case you default on your loan.

2. Lower Interest Rate

The more money you bring to the table, the better interest rate the bank will have to offer you. The loan to value ratio will be lower and you will be seen as less of a risk to the bank. Even a fraction of a percentage could end up saving you thousands of dollars in the long run.

3. Cheaper Mortgage Payment

The more money you have in your down payment the less money you will need to borrow from the bank. That’s always a win.

I won’t lie. I’m impatient and want this dream house like yesterday, but this is a huge purchase. It will probably be one of the biggest purchases of my life and I don’t want to rush into it and be unprepared. I noticed that I was comparing my journey to that of other people. Wondering how they could afford to purchase a home, but I still couldn’t. At the end of the day, that’s not my business. I need to focus all my energy on what’s right for me.

I don’t want to jump into something that I’m not ready for. If I bought a home right now with 3% down, I would probably struggle to make ends meet. I don’t want to be house poor. I have to be smart about this. I want the house to be a blessing and not a burden.  I want to be prepared for things that will come up. I know that there will be unexpected repairs that could pop up once I move in and I want to know that it will get taken care of because I have the money readily available.

Purchasing my first home won’t be an easy task to take on, but I love a challenge and I know that once I finally get that home I will be so proud of myself! All the sacrifices will have been be worth it. I’m no newbie to sacrifices. I’ve sacrificed a lot to get to where I am now. If I didn’t have goals I would probably still be in debt today. Still charging up that credit card like it was nobody’s business. Going on vacations to places that I couldn’t afford. I don’t miss those days. Nowadays goals to me means having financial security; being an adult and planning for the future.

Are you a homeowner? How was your home buying process? Are you saving up for a home?

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