Take as much time as you need to find the right home. Then work with your real estate agent to negotiate a fair offer based on the value of comparable homes in the same neighborhood. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the period of time it takes to complete all of the remaining steps in the home buying process.
What’s even better than recurring savings account deposits? Automated savings account deposits that you don’t have to remember to execute each month. Most banks allow recurring savings transfers from internal or external checking accounts. Examine your budget and determine how much you can afford to save each pay period or month, and then make it happen, preferably on the same date (or the day after) you receive your paycheck or direct deposit. Again, consider a separate savings account just for your down payment fund. If you’re looking to open a new account, go with one of these bank account promotions so you can make the most of the opportunity.
If you and your spouse both have IRAs, you can both withdraw up to $10,000, for a total of $20,000. Depending on the projected size of your down payment, that could be a sizable boost. And, on Roth IRAs held longer than five years, you can withdraw tax- and penalty-free contributions in excess of $10,000, though any withdrawn earnings are taxable at your normal rate.
If your take-home pay won’t get you to your down payment goal on your desired timeframe, or you’re worried about negatively impacting your lifestyle as you scrimp and save for your dream home, consider increasing your income by picking up a side gig – either by taking on a second part-time job, picking up work as an independent contractor, or exploring the many ways to make money from home.
Many financial experts agree that having saved up a down payment is a good sign that buyers are ready for homeownership. If you can make the necessary sacrifices to amass a down payment, lenders take this as a sign that you’ll likely be able to manage your finances to pay the expenses that come with owning a home, including monthly mortgage payments, repairs and property tax.
Deciding whether you want to buy a house involves taking a good, hard look at its structure and its features, but there are many other topics that are every bit as important to your purchase. You might want to consider having a home inspection to flush out hidden problems, or even talk to the neighbors to get firsthand opinions of the neighborhood.
Putting off buying a home for many years to save a large down payment can be a mistake. While you’re saving your down payment, the price of that house is probably going up. While home price appreciation is not guaranteed, real estate in the U.S. has historically increased by about 4 percent per year, according to Black Knight). In 12 years, a house costing $200,000 today may be priced at over $300,000.
The link between home down payments and interest rate aids lenders in calculating what mortgage industry professionals call the "loan-to-value" (LTV) ratio of the home. Loan-to-value, along with the debt-to-income ratio (i.e., the amount of money you owe weighed against the amount of income you earn) and your credit score are the primary factors a mortgage lender considers when making a home loan.
How you progress through a home buying transaction can vary somewhat depending on the real estate laws and customs where you live, but many steps are standard. You'll feel more confident about your home-buying journey when you understand the chain of events and what's required of you, as well as every other person who's involved in the transaction.
However, the devil is in the details. You have to pay back your 401k loans, with interest – typically at 2% above the prime rate. On larger loans, that means several years’ worth of three-figure monthly payments and several thousand in interest charges. Plus, if you take out a 401k loan before applying for a mortgage loan, your credit utilization ratio will spike, which could raise your mortgage loan’s interest rate or cause the bank to think twice about lending to you in the first place.