Saving for a home down payment: What to know?

Once you have decided to purchase a home, the next step is to begin saving for a down payment for your big purchase.

The question is, how do you save for your home purchase, and how much do you need? We will attempt to answer these questions and more in this article.

One of the common barriers to homeownership is thinking that you need a minimum deposit of 20%, which is not true. According to Freddie Mac, a Home Loan Mortgage Corporation, this myth is still prevalent in the minds of many would-be homeowners. "Nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”

Unless specifically specified by your lender, a 20% deposit is not typically a requirement. According to recent data from The National Association of Realtors, the median down payment has not been 20% since 2005. Some loan types allow home buyers to purchase a home with as little as 3.5% down. Still, other options allow buyers to enter the market with no money down.

Having said that, the larger the down payment you can put down, the better. By putting a large amount down on your home purchase, you can lower the cost of your monthly payment as well as reduce the term of your loan substantially.

When you know the budget for your home purchase and the percentage you want to put down on the purchase, be diligent in working towards that goal. Save money regularly and put it into a separate bank account or savings vehicle. Do not use your current bank account, as this could result in you spending your savings.

When saving for your down payment, do not put the money in a savings vehicle that is too volatile. If you put the money into a volatile saving vehicle (like the stock market), the value could be less than the amount you put in when you need to access it.

Once you have a plan of action, stick to it. Keep contributing at regular intervals and resist the temptation to use the money. The money should be accessible within a few days’ notice; however, if it is too easy to access, you may be tempted to spend it on things that are not aligned with your goals. If you stay focused, you will be glad you did!