Making the decision to buy a house can be both exciting and frightening at the same time. The anticipation of searching for, buying and owning your own home is fantastic, and it can be easy to get ahead of yourself. Remember that along with home ownership comes the need to meet certain financial goals and commitments. One of those financial goals is saving for a house downpayment and the first thing you need to find out is how much of a house downpayment will you require.
It wasn’t that long ago when it was very common for lenders to offer mortgages with no house downpayment needed. Fortunately things have changed over the past year or so. It was reckless lending that started the recent and catastrophic economic downward spiral, and although getting a loan and buying a house is much harder now, it is in our own self-interest. It means that we really need to be financially ready and capable before entering the housing market. This is a good thing. You are more likely to hold on to your home and build up valuable equity in it.
How much of a house downpayment will we need?
All mortgage lending institution will have varying requirements but as a general rule a 20 percent house downpayment seems to be a common figure, which is also the level where mortgage insurance might not be required. Mortgage insurance adds an additional cost on to your mortgage and protects the bank in case of a default. Not having to pay it adds up to a cost saving to you. An example of the 20 percent house downpayment requirement would equate to $50,000 on a house valued at $250,000.
Knowing that a house downpayment is needed can serve as a motivation to many people. It gives you the chance to set financial goals and be dedicated towards reaching the downpayment target. This is where the importance of a detailed budget and plan comes into play. If you’re in a position to save and you really put your mind to it, a target of 20 percent house downpayment can be achieved in good time. Speak with your accountant or financial advisor about effective strategies to build the downpayment. Consider using a term-deposit account which usually pays a higher rate of interest. Also approach the appropriate Government or State agencies who may offer incentive schemes or funding for low to moderate income earners, which can be added to the house downpayment of other buying costs.
Being financially ready to buy a house is a good thing. It proves to the bank and also to ourselves that we are as ready as we can be for home ownership. Having the largest house downpayment as we can manage is also a good thing. Think of it as buying instant equity in our own home. With the right professional advice and prudent management this equity can then lead to other investment strategies and opportunities.
