First-Time Home Buyers: Overcome the Down Payment Hurdle

It’s still true. Down payments have been the No. 1 barrier to buying a home for first-time buyers. Millennials (age 24 to 39) tend to have more trouble getting the cash they need for a down payment than their parents had at the same life stage due to higher student loan debt and lower personal income.

With 56% of older millennials ready to buy a home in the next three years, the struggle continues with how to save for a down payment.  Because saving for a down payment to buy a house can seem overwhelming, we recommend that you break it down into small, reasonable moves, that may take a while to accomplish but you might be able to save enough to afford a home sooner than you expected.

These four basic steps can help you save enough to buy your first home:

1. Know how much down payment you need.

Most lenders are looking for a 20% or higher down payment on a conventional loan, but there are options where you can put down much less. However, consider with a smaller down payment, you’ll likely be required to pay for mortgage insurance. That protects the lender from you defaulting on the loan and it increases the amount of your monthly payment.  If there is no mortgage insurance requirement, there can be other upfront or ongoing fees. Be aware of loan costs.

1. Non-traditional savings tactics.

Whatever your down payment goal, it can help to create a multi-tiered approach. Try these savings tactics:

• Automatic transfers from your checking account to your savings can help to make the process mandatory and maybe a little less painful. (See how to save $5,000 in one year.)
• Save raises and bonuses rather than spending them.
• Set aside tax refunds.
• Use loyalty rewards from your MTC Federal Debit Rewards Mastercard™ to get cash back on purchases and put the rebates in savings.
• Snag a few bucks here and there.Got a checking account a few bucks over a round number? Take the extra and transfer it to savings.
• Keep the car and save the payment.Paid off your car? Resist the urge to buy new and save the monthly payment. Or still have a car payment, refinance for a Guaranteed Better Loan which will lower your rate, lower your payment, and lower your term.

1. Tap into other funding sources.

Use non-traditional and out-of-the box methods to get the cash you need for your new nest.

• Ask parents for help. Your parents or grandparents might find it much easier than you to scrape together a few thousand dollars. If you decide to get family assistance, you will need to be very clear whether the funds are a gift or a loan. If you receive a loan from family or friends, draw up specific repayment terms, and if you receive a gift, keep in mind that parents can give up to $13,000 annually to their children without having to pay gift taxes.
• Getting Married? Skip the gift registry, instead ask for “money for the house.” Create an online crowdfunding-style registry, designed to accept contributions for your down payment goals.

1. Use interest to gain additional funds.

Now that you have a plan to save for your down payment, where do you put the cash? Keep the money out-of-site and out-of-mind by investing in one of these short-term options for a greater return:

• Dividend Savings Accounts: Earn a monthly dividend while keeping your money on deposit. Open today for as little as $50.
• Money Market Accounts: As your money grows so do the dividends with tiered interest.  Access to funds is available anytime when you’re ready to purchase your home. Open today with a $2,000 minimum deposit.
• Certificates of Deposit: Perhaps the best option is buying Certificates of Deposits (CDs) timed to mature around the time you expect to have the bulk of your down payment saved. They can offer a slightly higher rate than savings accounts or money markets, but that’s because your money is locked up for the term of the CD. Our Share Certificates provide a fixed rate of return over a specific period of time. Open today for as little as $250.