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How Much Should You Save For A Downpayment?

November 14, 2023

FHA Loan

How much should you save for a down payment on a home? It’s a common question that sounds like it should have a simple answer. The lowest down payment possible for an FHA mortgage is 3.5% of the price of the home.

But how much should you aim for when setting your budget to save up for that downpayment? The short answer is no. But why?

FHA Loan Down Payment Issues

Consider a hypothetical that involves a home on sale that you buy with an FHA mortgage. The home sells for $150 thousand, and 3.5% of that amount is $5,250.

That is not how much you’ll need to pay at closing time. You’ll also need to pay closing costs, which are separate from the down payment.

Closing Costs

A good rule of thumb is to expect to pay 6% of the price of the home for your closing costs. Those expenses may include the appraisal, compliance inspections, lender fees, and other costs. 6% of the $150 thousand amount mentioned above is $9,000.

The minimum cash needed to close comes closer to $14 thousand in this scenario. 

How long does the borrower need to save those down payment funds? Much depends on variables that vary depending on the borrower. You can get a rough idea by dividing $14k by 12 which translates into budgeting for approximately $1167 a month (for a full year) in savings before you get to closing day.

How Long Does Saving A Down Payment It Take?

Do you see those numbers and feel you haven’t given yourself enough time to save? Try cutting the amount in half. Add on an extra 12 months to save, and you may have an easier time adjusting your budget. 

In the scenario above, we divided the $1,167 in half. Doing so lets you save $583 a month for 24 months to be used for both the FHA mortgage down payment and the closing costs.

Reducing The Time You Must Save

Applying for a downpayment assistance program offered by a state or local agency may help lower the time needed to save for your FHA mortgage loan downpayment and closing costs. So can accepting down payment gifts of cash from family or friends. 

Keep in mind that your FHA lender will ask for sourcing information if you get down payment help. Ask the lender about that financial institution’s requirements for documenting the down payment assistance. 

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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