How to Save for a Down Payment

A home will probably be the most expensive purchase of your life. Saving for a down payment takes time and planning, so it’s never too early to start.

First, determine what you can afford.

Start with creating a budget. You can use our Money Management tool in Online Banking to get an excellent breakdown of where your money is coming from and where it’s going! As a general rule, your housing costs (mortgage principal and interest, property taxes, and homeowner’s insurance) should be no more than 28% of your gross monthly income, and your total monthly debt should be no more than 36%. Knowing your maximum monthly mortgage payment will help you determine how much house you can afford. Remember, these are maximums. This mortgage calculator lets you test different cost scenarios.

Write down your goal and plan.

People are planners. We plan what to wear, when to cut the grass, the menu for a holiday meal, shopping lists, and so on. If you’re not mindful, these daily plans will distract you from writing down the big goals and plans. It’s been proven that just writing down your goals improves your success achievement rate by 41%. Once you have identified an achievable down payment amount and a plan for savings, it’s time to write down your home ownership goal.

Start saving.

Choose a safe place to put your funds for a down payment: a savings account, a money market account, or a certificate. While these have lower interest rates than some other financial products, your money is guaranteed to be safe. Saving takes effort and commitment. Don’t squander the opportunity to open the door of your new home!

We reviewed many ways to save in our America Saves Week blog, but here are some other sources you may not have considered:

Search for unclaimed property. This search from the PA Treasury Department is fast and free. To date, $3.5 billion remain unclaimed.
Cash in matured savings bonds, if you have them.
Look to your IRA. An individual who qualifies as a first-time home buyer can withdraw up to $10,000 — penalty-free, even if he or she is under the age of 59-1/2. If your IRA is specifically a Roth IRA, your withdrawal is both penalty- and tax-free; other IRA withdrawals are taxable. Now here’s really good news: If you previously owned a home or if you or your spouse haven’t owned your primary residence for the past three years or longer, you qualify again as a first-time home buyer!
Skip, or at least keep a tab on, the plastic. Once we’re out-and-about again, leave your credit card at home and pay cash. If you do want to continue using your credit card, keep a running tab of each credit card purchase. This can give you the willpower to avoid impulse purchases and eliminates the rude surprise bill. If you’re already paying down a balance, remember to enter your monthly payment in first for each new month.
Buy store- vs. name-brand foods or shop at discount grocery stores. These savings add up, especially for pantry items, such as canned goods and pastas. Beans are beans, right?

In case you’re wondering, borrowing or withdrawing from your 401(k) for a down payment is not advisable. Withdrawals are taxed and incur a 10% penalty fee, and loans must be paid back with interest. Also (hopefully, this is not your case), the Coronavirus Aid, Relief and Economic Security Act (CARES) now enables those affected by COVID-19, physically or financially, to take distributions from a 401(k) or IRA if they are under the age of 59-1/2. These distributions, up to $100,000, must be repaid with interest after a one-year deferment. And the borrower would have three years to pay income taxes on the distribution.

Get started.

When you’re ready, give us a call at 1-800-926-0003. One of our mortgage loan officers will be happy to discuss what type of mortgage option would best make your home buying dream come true.