Becoming a homeowner is a very honorable accomplishment. There are obstacles in the path, but act smartly, and you will be able to remove them. The biggest one of these is probably arranging money for your down payment. The amount you have affects the amount of loan that you can borrow and the interest rate that you would be offered on it. Obviously, the more the down payment, the more you can borrow at a lowered rate. But how exactly do you know the amount needed for down payment?
A recent report has highlighted this issue. It has considered different factors such as the strategy duration, fund sources and so on. Using these tips, you can figure the down payment you need.
A lender will consider your income when he determines if you can qualify for a loan or not. You should do the same and use a percentage of your income to calculate the amount you should save every month or period. As an example, if you save 20% of your income, you should be able to afford a down payment within a year or 16 months provided you earn a figure that is close to the average income value.
If 20% is too much for you, you can start by saving 10% of your income. After about two or two-and-a-half years have passed, you will have accumulated enough money for a down payment.
Down Payment Sources
There are many sources from which you can derive money for a down payment if your income is not enough or you face trouble in saving a substantial amount of money. Though, all these sources serves the purpose well, use them only after you have sought advice from a professional:
- 401(k)s – If your employer contributes to your 401(k) account, you should be able to become a homeowner in a shorter amount of time. This is because most of the 401(k) accounts allow you to use your savings if you are a first time buyer.
- IRA – IRA accounts are based on a similar concept as the 401(k) accounts, but there are no employer matches.
- CDs – CDs can be used to generate more funds for your down payment, and make the process relatively easier. If you cannot set aside an amount on your own, a CD can do it for you automatically if you set up an electronic transfer.
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