The average house price in the United States has been steadily trending upward since the 1960s. However, the average price skyrocketed in 2021 and reached a new all-time high of $453,700. A home’s value typically increases over time but rarely jumps more than 15 percent in a single year.
Unfortunately, the future is unclear when (or if) the average home prices will come down or stabilize. Since the demand for homes is high and the supply is low, it might take a little while before the market cools off. There is some good news, though. You don’t have to pay the full price for a home all at once. All that you’ll need is a good enough credit score and enough money to cover a down payment.
What Is a Down Payment?
A down payment is a sum of money that a buyer pays during the early stages of a significant financial transaction. The down payment is a percentage of the home's total price, and a mortgage will cover the rest. It’s extremely common for homebuyers to rely on down payments and mortgages to finance their home.
The specific amount of down payment varies based on a few factors (more on that later), but it’s traditionally around 20 percent of the purchase price. The reason for this standard is that it will lower the risk to mortgage lenders, which comes with two crucial benefits:
- The odds of your mortgage application being accepted will greatly increase.
- Most lenders will waive the requirement for private mortgage insurance.
While 20 percent is a solid goal, you should try to make as much down payment as you can reasonably afford. The more you pay upfront, the less you’ll owe in the long term. You might have to tighten the budget for a little while, but you’ll save a lot of interest over the years, and your monthly payments will be lower.
How Are Mortgage Amounts Determined?
Down payments and credit scores are probably the most critical factors in getting a mortgage, but they aren’t the only ones. Mortgage lenders will require a lot of personal and financial information to determine the overall risks of approving your application. You’ll need to disclose your annual income, monthly expenses, employment status, total debt, and the value of your current assets.
The mortgage lender will use all of this information to determine whether they’ll lend you money for a mortgage, the maximum amount they’ll offer, and the interest rates you’ll be given. Depending on your specific situation, you might not be approved for a conventional mortgage. In that case, you would need to consider a different type of mortgage that is a better fit for you.
Which Type of Mortgage Is the Best?
Here is a list of the four most common types of mortgage:
- Conventional mortgages
- Federal Housing Administration (FHA) mortgages
- Veterans Affairs (VA) mortgages
- U.S. Department of Agriculture (USDA) mortgages
There are a few different types of mortgage loans available, and each will come with a unique set of requirements and conditions. Doing a little research and seeing if you qualify for different mortgages might be a good idea. Some of them come with much better terms and conditions, so you could save a lot of money in the long run.
Conventional Mortgages
Conventional mortgages are loans offered by banks and other financial instructions. The federal government does not back these mortgages, which will typically come with stringent requirements. The overwhelming majority of mortgages (more than 75 percent) are conventional.
Federal Housing Administration (FHA) Mortgages
Federal Housing Administration (FHA) mortgages are available to qualifying first-time home buyers with a low to moderate-income. These mortgages are insured by the federal government and sometimes come with a down payment requirement of only 3.5 percent. Credit score requirements are usually less stringent, but FHA loans will require mortgage insurance premium (MIP) payments each year.
Veterans Affairs (VA) Mortgages
Veterans Affairs (VA) mortgages are available to all qualifying active members of the military, veterans, and their spouses. These mortgages can finance 100 percent of the loan without requiring any down payment. There are also fewer closing costs, lower interest rates, and no requirement for mortgage insurance. However, a VA mortgage will require a funding fee that will depend on military service records and the loan amount.
U.S. Department of Agriculture (USDA) mortgages are available to qualifying low-income borrowers living in rural areas. These mortgages don’t require much money as a down payment as long as the property meets the USDA’s rules for eligibility. Some income limitations could deny an application, and mortgage insurance will be required with a low down payment.
What Are Closing Costs?
The most significant part about saving up for a house is covering the down payment requirements. Once you know which type of mortgage you’re getting, you’ll be able to calculate the proper percentage for a down payment.
However, the down payment is only one of the costs of buying a new home. Closing costs are another expensive fee that you’ll need to be able to cover.
Closing costs are usually around three to six percent of the home’s total price. There are a lot of different fees included in closing costs, such as:
- Application fees
- Attorney fees
- Closing fees
- Commission fees
- Courier fees
- Credit reporting fees
- Discount points
- Escrow funding
- Flood certification fees
- Homeowners association fees
- Homeowners insurance
- Land survey fees
- Lead-based paint inspection fees
- Loan origination fees
- Owner’s title insurance
- Pest inspection fees
- Prepaid daily interest charges
- Private mortgage insurance
- Property appraisal fees
- Property taxes
- Rate lock fees
- Recording fees
- Survey fees
- Tax monitoring fees
- Tax status research fees
- Title search fees
- Transfer taxes
- Underwriting fees
What Are the Best Ways to Save Money for a House?
- Create a budget
- Eliminate luxuries
- Increase your income
- Use Yotta savings account
As you can probably imagine, buying a house is typically the most expensive purchase the average person will ever make. Depending on the home you want to buy and the mortgage type you qualify for, you could be staring down the barrel of a hefty down payment and high closing costs. But with a lot of hard work and a little luck, you could be holding the keys to your dream home before you know it.
Unless you’ve already been saving up, the chances are that you’ll need to make some lifestyle changes to get started. Here are a few of the most effective ways that you can save up money quickly:
Create a Budget
Gather your financial information from the last few months and break out a calculator. You need to determine how much you make each month and how much you spend.
You can calculate how much you are currently saving by subtracting your expenses from your income. Multiply this number by 12 to see how much you will save in a year. That will give you an idea of how much work you’ll need to put in to buy your home.
Eliminate Luxuries
The goal is to reduce costs as much as possible by eliminating needless spending. It will take a lot of dedication and sacrifice, but eliminating luxury items will get you into your new home faster.
Obviously, you’ll need to continue paying for rent, groceries, utilities, medications, and any loans. That means you’ll need to cut down on expenses by cutting out gym memberships, eating out, TV subscriptions, shopping, going to the movies, and vacations.
Increase Your Income
Cutting out the luxuries and reducing expenses is only half of the equation. The other half is to increase your monthly income. Asking your boss for a raise, requesting overtime opportunities, or looking for a higher-paying job are all things that will increase your monthly income.
You could also pick up a second job and work on nights or weekends. The beauty of a side hustle is that none of the money will be needed for your expenses, so it can all go straight into savings.
Use Yotta Savings Account
After you’ve optimized your savings on paper, you’ll need a place to put them. Traditional savings accounts are largely a waste of time as they only offer interest rates of 0.03% or lower. If you want to save money fast, then you should look into using Yotta instead.
By using Yotta, you’ll be given an interest rate more than double the national average. But that’s not even the best part. Yotta also conducts weekly sweepstakes with prizes ranging from ten cents to ten million dollars. The more money in your account, the more tickets you’ll receive, and the better the odds of hitting the jackpot.
Starting Saving for Your Dream Home Today
There are a ton of factors that will determine how much you will need to save up when you’re buying a house. In general, you should aim to save at least 25 percent of the home’s purchase price. That should cover a 20 percent down payment, closing costs, property taxes, insurance, home inspection, moving expenses, and additional third-party fees.
The chances are that you’ll need to make some changes to save up that kind of money. While there’s no substitute for hard work and sacrifice, a shortcut might be available. A Yotta savings account could be the answer.
Create your Yotta account today to find out more and enter into the next sweepstakes. The more you save in your account, the more likely you’ll win cash prizes. Who knows? With some luck, you might be able to afford that dream home much sooner than you think.
