Planning Your Down Payment


Purchasing a home will likely be the biggest financial commitment you ever make. Of course, very few people pay for their home in cash; you’ll most likely take out a mortgage loan to help make homeownership attainable. You will need to pay some cash at closing, though—what’s known as a down payment.

How much will your down payment be? Generally speaking, 20 percent is the rule of thumb. It’s possible to put down less, but you’ll very possibly have higher interest rates, and you’ll need to talk with your lender about the specific mortgage product that accommodates your needs. You are always welcome to put down more than 20 percent, too, which may make your interest rates lower and your monthly payments more manageable.

Saving for a Down Payment

Because you are required to pay your down payment at closing, before you can get the keys to your new home, it’s important to save for your down payment even before you start looking for a home. When you know the amount you can put up for the down payment, you’re in a better position to shop for mortgage rates and to get a sense of the kinds of homes you can afford.

If you do not currently have enough money saved up for a reasonable down payment, you may want to delay homeownership for a little while until you can save up. One specific recommendation is to open a savings account that is solely for your down payment. Make sure you resist the urge to dip into the account to pay for emergency auto repairs or the like; no, this account should be separate from your emergency fund, and you shouldn’t touch it until you’re ready to buy a home.

From there, sit down and come up with a household budget. Factor in rent, your phone bill, gasoline, food, and all your other expenses. Come up with a percentage of your monthly income that you can immediately defer to the down payment—and then start doing that. You may even be able to get your employer to automatically distribute a certain amount of money into your down payment savings account each month, which can help keep you honest!

As you save for your down payment, you should also be talking to different mortgage lenders and getting a sense of where you can get the best rates. (Make sure you do not give them permission to run your credit score, but do run a credit check yourself, and know roughly where you stand.) Between your down payment target and your rough sense of mortgage rates, you should be able to come up with a reasonable sense of how much house you can truly afford.

Getting Started with Your Search

Once you have that down payment saved up, you’ll be ready to start looking at homes. If you’re looking in North Carolina, we’d love to show you some. Minges Cline has deep roots in the Cornelius, Davidson, and Huntersville areas. Contact us to start seeing some homes!