How To Buy A Home In The 2024 Economy
Homeownership can be in your future, here's what you need to know about saving for a downpayment.
Are you considering buying a house this year? Becoming a homeowner is an exciting life change. However, the 2024 economy may make you nervous about such a big expense; Especially since the income needed to afford a typical home has increased by 80% in the past four years.
We know this is shocking. But don’t worry—homeownership can be possible for you.
Let’s examine the current housing market and discuss how to start saving for a down payment!
What the 2024 housing market looks like
According to Zillow reports, the typical monthly mortgage payment in January 2024, with a 10% down payment, was $2,199, a 96.4% increase from four years ago.
Mortgage rates have also changed. Currently, the rate for a 30-year fixed-rate loan is 6.9%.
Fortunately, reports from Fannie Mae, the National Association of Realtors, and the Mortgage Bankers Association have predicted that rates will fall back into the 6.1% and 6.8 % range towards the end of the year.
So, now is a great time to prepare your finances and save for a down payment.
7 Steps to save up for a down payment
Securing a down payment is one of the first steps to homeownership. It is a large one-time payment that is a percentage of the purchase price of your new home.
Saving for a down payment can take some time, but it is ultimately worth it.
1. Determine how much money you should save
Many first-time home buyers take out a loan to cover the purchase cost of a new home. The type of loan you use will affect your down payment amount, so it’s important to know which type of loan works best for you.
Finding the right loan
There are various types of loans. Some loans are federally backed, while others are through banks and other loan programs. Here are some of the options:
USDA loans are for low to moderate-income buyers who live in large rural areas. These require no down payment for eligible buyers.
VA loans for veterans require no down payment.
First-time buyer programs offer loans are for people purchasing a principal residence for the first time. However, some movement programs consider first-time home buyers as those who haven’t bought a home in the last three years. These programs typically offer zero to low down payment rates between 3% and 5%.
Conventional loans usually require a down payment of a minimum of 3% to 5%.
FHA or Federal House Administration loans require a down payment of at least 3.5% of the loan amount.
Calculate your down payment amount
As you can see, different loans have different requirements. Remember to read through the terms of your loan to know which costs are covered and which are not.
You can use a mortgage calculator to help you figure out your total costs. Here are some of our favorites.
2. Create a monthly savings goal toward your house down payment
Once you know your down payment amount, you can start saving with a monthly savings goal.
Your savings goal is the amount of cash you can realistically save each month to pay for that down payment.
Say your savings goal is $10,000, and you want to put down a down payment a year for now. Take your savings goal amount and divide it by 12, which will give you a monthly savings target.
Next, look at your income and expenses and determine what adjustments you need to make to honor that goal.
If you can’t reach that savings goal yet, see what you can afford and consider an amount you can comfortably put aside for your monthly savings goal.
3. Add saving for your house to your budget
With your savings goal in mind, you can integrate it into your budget by adding it as a new category. This way, you’ll set aside funds every month.
The key is to treat your savings like any other expense that has to be paid monthly.
4. Determine your timeframe to purchase your first home
Once you’ve set up a savings routine, see how long it’ll take you to reach your goal by dividing your down payment target by your monthly savings goal.
If you want to get your down payment sooner, consider the following:
Pick up a side hustle or second job to increase your income
Cut back expenses like cable, dining out, and shopping
Once your income increases and your expenses decrease, make sure to update your monthly savings goal.
5. Open a separate savings account to save for your house down payment
Now that you’ve nailed down your monthly savings goal and added it to your budget, it’s time to step up the best place to save your money.
Because you’ll be saving a lot of money, it’s best to put it where you can earn some interest. An interest-bearing account can help you reach your goal faster.
6. Automate your savings
Once your account is set up, the easiest way to ensure you save is to automate your savings with automatic transfers.
Let’s be honest: saving money isn’t always easy. But setting up a process where you don’t have to think about saving will ensure you stick to your plan.
You can set up automated savings by asking your employer to deposit a percentage of your paycheck straight into your savings account. Another option is to have your bank deposit some funds from your checking account on a set day each month.
The less you have to worry about it, the smoother saving for a down payment will go.
7. Save some more
Lastly, while saving for your down payment, remember there are additional costs when buying a house. Alongside your down payment stash, think about saving for the following:
Closing costs
Inspections & appraisals
Moving fees
Homeowners’ association fees
Setting up your new place with furniture, decor, or maybe a bit of renovation
Not all of these might apply to your situation, but it’s smart to have some extra funds handy for any surprises.
Now that you know the steps to take, stay on track by reminding yourself what you’re saving for. I often like to have visuals of what I’m saving for, so for you, that could be putting up pictures of your dream home.
If you need some extra guidance, check out our completely free courses on buying your first home.