Since performance bonuses and profit-sharing payments aren’t guaranteed, it’s risky to account for them in your day-to-day or month-to-month budgets anyway. That’s like counting your chickens before they hatch. If you don’t make plans for your bonuses or profit shares before you know you’ll get them, you won’t miss them. Actually, you’ll be grateful for them as they slowly but steadily grow your down payment fund.
USDA Loans. If you’re buying a home in a rural or outer suburban area, you may qualify for a USDA loan, another type of federally insured loan designed to bring housing within reach for lower-income country-dwellers. Unlike FHA and VA loans, USDA loans are direct loans – they’re made by USDA itself. Use USDA’s property eligibility map to see if you qualify.
Nevertheless, scraping together a down payment is a tall order, especially for first-time homebuyers in expensive coastal markets. According to CoreLogic, the average home price in California’s Bay Area topped $700,000 in 2016 – and that figure includes relatively inexpensive bungalows in East Bay suburbs, as well as ultra-pricey row houses in San Francisco proper.
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Your house might be the single biggest purchase you ever make, but it won’t be the only big-ticket item you ever buy. Unless you can comfortably live without a car, you’re likely to buy a new or used vehicle every few years. If you have kids, you’ll need to budget for their education. Once you’re ensconced in your home, you’ll probably want to make sensible improvements that enhance its value or accommodate your growing family. And, all the while, you need to have enough set aside for the unexpected.
In turn, the lender will use this info to decide whether or not to loan you money, as well as how much and at what interest rate. If a lender sees some late payments on your credit cards or other blemishes in your credit report, this can lower your odds of getting a loan with a great interest rate, or perhaps even jeopardize your chances of getting any loan at all.
Or better yet, decide how much you’re willing to pay. Just because you can qualify for a larger mortgage doesn’t mean you want to have that kind of payment each month. Use the mortgage affordability calculator to help determine what you can afford. Now is also a good time to research your housing market and start going to open houses in your prospective neighborhood to give you a good sense of what your money will get you.
You need to worry about common closing costs such as your home inspection, lender appraisal, and title insurance. Taken together, these expenses are nothing to sneeze at – depending on your situation, they can amount to anywhere from 3% to 6% of the total purchase price. In buyers’ markets, you might have luck convincing your seller to pay some closing costs, but that’s far from guaranteed.
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.