4 Steps from Renter to Owner - Let's Talk Down Payments

 couple weeks back, we shared a new post where we gave 4 tips for anyone who wants to go from renting to owning a home. To refresh, here they are:


  • Save money for a down payment
  • Build your credit score
  • Chat with an agent
  • Get pre-approved for a loan


In the next few blog posts we will be breaking down each of the pieces of advice above so that you can feel well researched and knowledgeable when the time comes for you to take the leap into homeownership. This leap can be a scary one but it doesn't have to be a nightmare - if you use these tools to prepare yourself and become an educated buyer then finding your dream home can be a great experience.

This week we're breaking down the first tip, saving money for a down payment. I want to start off by clarifying what exactly a down payment for a home is. If you can't afford to purchase your home fully in cash (don't worry - this is far from normal) then you will need to finance your home using a mortgage. Occasionally a lender will give you the full cost of the home for the mortgage but more often than not, they will request that you pay a portion out-of-pocket from the start and this is your down payment. 

The total cost of your down payment has several factors that come into play. One factor is your credit score - we will speak much more on this in a future post - which affects the loan type that a bank is willing to provide you. I have many young buyers seek advice or assistance from parents or grandparents and an all too common message they receive is ‘you must be able to hand over 20% of the total cost as a downpayment' and while they always mean well, we are no longer in 1975 and this is not your grandpa's housing marketing. Times and standards have changed in the field of real estate and putting down such a high portion of the cost on day 1 is far less common.

According to The Mortgage Reports, the average down payment for first time homebuyers today is only 6%. On a $250,000 purchase that is only a total of $15,000. For young buyers who may not have a ton of cash in the bank at the moment but are on a trajectory to be able to afford a nice home overtime, this can be a make-or-break factor. To find the best percent down for you, you'll absolutely want to discuss at length with your loan provider who will take things into account like your credit score but there are even loans that require 3.5% down.

When it comes to saving up the money you want to use for this purpose, keep in mind that even though low percentage loan options are available, the more that you are able to pay upfront the smaller your loan can be and therefore you will pay less in mortgage. There are endless resources and tactics to go about saving money and it will look different for each person but if you know you are hoping to purchase a home soon, there are small changes you can make that will add up to make big differences. Let's say that you go to Starbucks 5 times a week and each time you drop $8 on your bill. If you cut back on that and instead prepare your breakfast at home you can save $2,080 to put toward your down payment. 

This part of the buying process can be one of the most anxiety-inducing because people think it is not as flexible as it can be. While preparation and having a good amount of cash set aside is highly recommended, you don't necessarily need to listen to grandpa's advice from the 70's - instead work with your lender to find the plan that is right for you and you'll set sail in a positive direction on buying your first home.