5 Steps to Saving for a Down Payment

 

Step 1: Set a clear savings goal.

The first step in saving for a house is to know the exact dollar amount you actually need. In a perfect world, you’d pay for your house with 100% cash. But that’s not realistic for everyone.

So, if you’re getting a mortgage, start by asking yourself these questions:

• How much should I spend on a house? The answer depends entirely on your lifestyle, your income, how you spend money, how you budget and how much house you’re looking for. But whatever you do, never spend more than 25% of your monthly take-home pay on a 15-year fixed-rate mortgage—otherwise, you’ll be house poor. And stay away from expensive FHA, VA and USDA loans that rip you off.
• How much down payment should I have? When deciding how much down payment to save, your ideal goal is at least 20% of the home price. Anything less and you’ll have to pay for private mortgage insurance (PMI). If you’re a first-time home buyer, a smaller down payment of 5–10% is okay too. But then you will have to pay PMI.
• How long will it take me to save for that down payment? This is up to you, but patience and hard work really do pay off! You should set a goal to save a nice down payment in two years. Try not to drag it out much longer than that, though. You’ve got plenty of other money goals to take on next—like your retirement and the kids’ college funds (if you have kiddos).
• Where can I put money for a down payment? Just like an emergency fund, you’ll want to put your down payment in a place that’s easy to access—but not too easy. Remember: A down payment is not an investment. So, stashing that cash in a money market savings account will get the job done. You won’t make tons on interest, but you won’t lose money either.

Again, let’s say you want to save $40,000 in 24 months to cover your down payment (plus closing costs and other moving expenses). Now that you’ve set your goal, it’s time to fast-track your savings.

Step 2: Tighten your spending (temporarily).

Let’s start with the money you’re already bringing in every month. That’s right—let’s flex your budgeting muscles! You’ll be amazed at how much money you find when you pay attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on saving for a house:

• Take a break from the gym: $60 per month
• Save going out to eat for special occasions: $200 per month
• Trim your clothing budget: $100 per month
• Buy generic: $160 per month
• Cut the cable: $110 per month

These tips could save you $630 every month! That adds up to more than $15,000 over the course of 24 months. Now, get creative and think up even more ways to trim your spending.

Step 3: Hold off on your retirement savings (temporarily).

If you’re already saving for retirement, this might feel really weird. After all, at Ramsey, we teach you to start investing 15% of your household income for retirement after you’re out of debt and have your full emergency fund in place.

But if you’re planning to buy a house in the near future, it’s okay to hold off on your retirement savings and put that money toward your down payment. Remember: You’re in charge of how gazelle intense you want to be. If that’s what you decide to do, that’s okay! It’s only temporary. Once you’re sipping coffee in your new breakfast nook, you can get right back to putting 15% toward your retirement goal. Just make sure this is only a quick detour (like a year or two)—not a five-year pause. Think of it like this: If you’re currently investing $500 a month into 401(k)s and IRAs but you put that money toward your down payment savings instead, you could save around $12,000 in two years. That’s a big boost for your down payment!

Pro tip: Don’t borrow from or cash out your retirement accounts to speed up your down payment savings. Not only will you get hit with taxes and early withdrawal penalties, but you’ll also tank the long-term growth of your retirement savings—costing you hundreds of thousands of dollars at retirement. Yikes.

Step 4: Boost your income.

If you’re looking for another way to turbocharge your income, there’s nothing like picking up a side gig or a second job. Your side hustle doesn’t have to be torture either. When you’re thinking up ideas, start with the stuff you love doing already. Check out these ideas:

• Like driving? If you don’t mind carting strangers around or making deliveries, you could make some sweet cash on a flexible schedule through companies like Lyft or Uber.
• Enjoy teaching? Search online for tutoring jobs or ways to teach English as a second language. If you have advanced degrees, you could earn even more.
• Love pets? Let your friends and coworkers know you’re available to watch Rover the next time they’re out of town. Get some fur therapy and make money at the same time.
• Now, you’re probably wondering: Is it worth it? (That’s like asking us if Dave Ramsey hates credit cards.) Yes—it’s absolutely worth it!

Let’s say you start a side hustle and put in 10 hours a week making $15 an hour. That’s an extra $120 per week—after taxes! Keep that up and you’ll have more than $12,480 for your down payment savings in just 24 months.

Step 5: Cut the extras and save even more.

It’s time to get tough and cut out some extra spending. Ouch. It might hurt, but keep your mind on your why—home sweet home. Here are a few ideas to get you started:

• Skip the summer vacay. This one is going to hurt, but in the long run, it’ll be worth it. Skip the fancy summer vacation, and throw that money in savings instead. You could probably pocket $2,000 from that alone.
• Sell some stuff. Do you have a lot of extra stuff collecting dust around your house? Sell. It. All. Take advantage of online sites like thredUP or Poshmark for gently used clothes, then use Facebook Marketplace or eBay for everything else.
• Have a garage sale. Is your neighborhood having a sale soon? A garage sale can bring in some extra dough like nobody’s business. Scoring $500 from a Saturday morning garage sale is a win in our book.
• Save all the money you earn from your annual raise or bonus. Planning to get a little Christmas bonus? What about a bonus for a job well done? No matter what that extra cash is for, you can tell the big-screen TV to wait. Stash your bonus money in savings instead. That could be an easy $1,500 bump.

Source

When Is The Best Time Of Year To Purchase A Home?

 

Historically, spring and summer have been the busiest times in the real estate market. But the traditional seasonality of homebuying and selling was upended by the pandemic: Home sales slowed significantly amid stay-at-home orders, then dramatically spiked, and the market remained volatile for quite some time.

The good news is, things have since returned to something closer to normal. One positive sign: After years of a distinct lack of available homes for sale, which kept homebuyers at a disadvantage, Realtor.com is forecasting an 11.7 percent increase in existing housing inventory for 2025. This increase would bring more balance to the supply-and-demand metric — and also more leverage for buyers. In other words, seasonality may once again become the most important factor in determining the best time of year to buy a house. 

Spring and early summer are the busiest and most competitive time of year for the real estate market. There’s usually more inventory listed for sale than other times of year, and home prices tend to be steeper to reflect the increased demand. Since 2011, the months of February through June have been the most lucrative time to sell, according to a 2024 study by ATTOM Data Solutions, with May in particular earning sellers an average premium of 13.1 percent above market value. The other months in the range all yielded premiums ranging from 12.2 percent to 12.8 percent.

“Typically, sellers choose spring and summer as the time to list as the majority of buyers are out in the market,” says Ryan Jancula, principal and lead broker with Jancula Group at Compass in Los Angeles. “This is a double-edged sword for a buyer, as you will be met with more opportunities but [also] much more competition, which may lead to further increase in prices or less desirable sale terms.”

If you’re hoping to save some money and your timeline is flexible, consider waiting until the rush is over and not starting your home search until mid- or late-summer. The most expensive month of the year to purchase a home is May, when seller premiums are as high as 13.1 percent above market value, according to ATTOM data.

Buying off-season has its benefits, though. The ATTOM study, which analyzed 59 million single-family home and condo sales between 2011 and 2023, showed that October is the month with the lowest seller premium by far at 8.8 percent, compared to May’s 13.1 percent. The next lowest were September and November, both at 9.5 percent. That means October is when homebuyers are likely to get the best deal. In fact, a recent Zillow report declared early fall to be “the next housing sweet spot.” The least expensive month of the year to purchase a home is October, when seller premiums are at their lowest, according to ATTOM.

Just because spring is the industry’s prime time doesn’t automatically mean it’s the right time for you. You have to consider your personal circumstances as well as seasonality — for example, if you are getting married or having a baby in August, you may not be able to wait nearly a year for a larger home.

“While spring is typically referred to as the home buying season, that doesn’t necessarily guarantee that it is an optimal time to buy,” says Mark Hamrick, Bankrate’s senior economic analyst.

In addition, if price is of concern to you, you may in fact be better off waiting out the rush. This chart illustrates median home prices since the start of the COVID-19 pandemic, using data from the National Association of Realtors. Once the chaos of the early pandemic died down, the highest price spikes were uniformly in June or July, and the lowest prices occurred in the dead of winter. Source

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4 Important Accounts To Have When Buying A Home

 

Buying a home is one of the biggest financial moves you’ll ever make. And if you’re planning to buy in 2025, setting up the right financial accounts now can make all the difference between a smooth homebuying experience and unnecessary stress. 

So, let’s break down the four essential accounts you should have before you buy a home;

1. Checking Account – The Hub for Your Finances

Your checking account is where your financial transactions happen—paying bills, covering daily expenses, and managing cash flow. But here’s the mistake many homebuyers make: keeping too much money in their checking account.

Your checking account should only hold enough money to cover three months of expenses at any given time. Why? Because idle money sitting in a checking account isn’t working for you. Interest rates on checking accounts are typically very low, meaning your money isn’t growing. Instead, use this account strictly for expenses and keep your excess funds in high-yield savings accounts where they can earn interest.

2. High-Yield Savings Account (HYSA) – Your House Fund

If you’re planning to buy a home, you’ll need funds for your down payment, closing costs, and initial home expenses—and this money needs to be in a safe place where it can grow. That’s where a high-yield savings account (HYSA) comes in.

Unlike regular savings accounts, HYSAs offer higher interest rates, typically around 3.75% or more. This means your money grows while you’re saving, helping you reach your homeownership goal faster. Look for an HYSA with no fees and easy access, so you can withdraw your funds when it’s time to close on your home.

3. Emergency Fund – Your Safety Net

Life happens. Unexpected car repairs, medical bills, or job changes can throw a curveball at your finances. The last thing you want is to be financially stretched right before (or after) buying a home.

A good rule of thumb? Keep 3-6 months’ worth of expenses in a separate HYSA dedicated to emergencies. Some banks allow you to create sub-accounts within your HYSA, making it easy to separate your emergency fund from your house fund while still earning interest. An emergency fund provides peace of mind, ensuring that you can handle surprises without dipping into your home savings or disrupting your mortgage payments.

4. Retirement Accounts – Thinking Long-Term

While buying a home is a major financial milestone, it’s not your only financial goal. Retirement planning should still be a priority, even when saving for a house.

If your employer offers a 401(k) with a match, contribute enough to get the full match—it’s free money! After that, consider opening an Individual Retirement Account (IRA) to further grow your retirement savings.

Not sure if you’re on track? Tools like Vanguard’s retirement calculator can help you estimate your future savings and adjust your contributions as needed. While your home is an investment, you don’t want to neglect the bigger picture of long-term financial security.

Final Thoughts: Build Your Financial Foundation Now

Buying a home is exciting, but it requires smart financial planning. Setting up these four accounts will put you in the best position to purchase a home without unnecessary stress or setbacks. As a mortgage broker, my goal is to help you navigate the homebuying process with confidence. 

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Getting a Mortgage: 5 Ways to Improve Your Chances

Buying a home is a major financial investment, and, for many people, the largest purchase they will make. To buy a home, you’ll likely need a mortgage for funding that you can pay off over the long-term. However, not everyone will qualify for a mortgage.  Here are a few ways you can improve your chances on being approved right away;

1. Check Your Credit Report

Lenders review your credit report, which is a detailed report of your credit history, to determine whether you qualify for a loan and at what rate.

By law, you are entitled to one free credit report from each of the “big three” credit rating agencies (Equifax, Experian, and TransUnion) every year.

 You can use AnnualCreditReport.com to request your free copy, which you can get immediately in electronic format. Review your credit report for errors and to get an understanding of your credit history, such as if you have a history of late payments or high credit utilization.

2. Fix Any Mistakes

Read your credit report closely to see if there are any mistakes that could negatively affect your credit. Look for potential errors such as:

• Debts that have already been paid (or discharged)
• Information that is not yours due to a mistake (e.g., the creditor confused you with someone else because of similar names and/or addresses, or because of an incorrect Social Security number)
• Information that is not yours due to identity theft
• Information from a former spouse that shouldn’t be there any more
• Out-of-date information
• Incorrect notations for closed accounts (e.g., it shows the creditor closed the account when, in fact, you did)

Consider checking your credit report at least six months before you plan to shop for a mortgage so you have time to find and fix any mistakes.

3. Improve Your Credit Score

A credit score is a three-digit number that lenders use to evaluate your credit risk and determine how likely you are to make timely payments to repay a loan. The most common credit score is the FICO score, which is comprised of different credit data:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• Credit mix – 10%
• New credit – 10%

In general, the higher the credit score you have, the better the mortgage rate you can get. To improve your score, check your credit report and fix any mistakes, and then work on paying down debt.

Setting up payment reminders so you pay your bills on time, keeping your credit-card and revolving credit balances low, and reducing your debt. Avoid making a major purchase while you are applying for a mortgage.

4. Lower Your Debt-to-Income Ratio

A debt-to-income ratio compares the amount of debt you have to your overall income. It’s calculated by dividing your total recurring monthly debt by your gross monthly income, expressed as a percentage. Lenders look at your debt-to-income ratio to measure your ability to manage the payments you make each month, and to determine how much house you can afford.

Lenders like to see debt-to-income ratios that are 36% or lower, with no more than 28% of that debt going toward mortgage payments (this is called the “front-end ratio”). In most cases, 43% is the highest debt-to-income ratio you can have and still get a qualified mortgage. Above that, most lenders will deny the loan because your monthly expenses are too high compared with your income. 

To lower your debt-to-income ratio, and both are easier said than done:

• Reduce your monthly recurring debt.
• Increase your gross monthly income.

To reduce your monthly recurring debt, first cut back on purchases you make with credit. Look at where your money goes each month, figure out where you can save and make it happen. To increase your income, you can try to find a second job, work extra hours at your primary job, or request a pay increase.

5. Go Large with Your Down Payment

A large down payment can also help increase your chances of getting approved for a mortgage. The more money you put down, the more you reduce the loan-to-value ratio, which also increases your chances of getting the best mortgage interest rates.

The loan-to-value ratio is calculated by dividing the mortgage amount by the purchase price of the home (unless the home appraises for less than you plan to pay, in which case the appraised value is used).

Here’s an example. Say you plan to buy a house for $100,000. You put down $20,000 (20%) and seek a mortgage for $80,000. The loan-to-value ratio would be 80% ($80,000 mortgage divided by $100,000, which equals 0.8, or 80%). If you can put down $40,000 for the same house, the mortgage would now be just $60,000. The loan-to-value ratio would fall to 60% and it will be easier to qualify for the lower loan amount. 

When you're setting your down payment, remember that a 20% or larger down payment will also mean that you won't be subject to a mortgage insurance requirement, all of which can save you money. Source

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What Is Adjustable-Rate Mortgage (ARM)

 

Adjustable-rate mortgages (ARMs) have an interest rate that may change periodically depending on changes in a corresponding financial index that's associated with the loan. Generally speaking, your monthly payment will increase or decrease if the index rate goes up or down.

ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.

When might an adjustable-rate mortgage make sense?

• If you plan to move before the end of the introductory fixed-rate period, so you aren't concerned about possible rate increases
• If you want an initial monthly payment lower than a fixed-rate mortgage usually offers
• If you think interest rates may go down in the future

Source

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All About Appraisals

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

Why Get An Appraisal? Obtaining a loan is the most common reason for ordering an Appraisal, however there are other reasons to get one:

• Contesting high property taxes
• Establishing the replacement cost for insurance purposes
• Divorce settlement
• Estate settlement
• Negotiating tool in real estate transactions
• Determining a reasonable price when selling real estate
• Protecting your rights in an eminent domain case
• A government agency requirement
• A lawsuit

There are 3 common approaches, or Appraisal Methods, used by Appraisers to establish property value. After thorough exercise of all 3, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an Appraiser.

• Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.

• Sales Comparison Approach – The Appraiser identifies 3 to 4 comparable comps, recently sold properties in the neighborhood, ideally, sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.

• Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.

Who Owns The Appraisal? The mortgage company owns the appraisal even though the borrower paid for it. This is because the mortgage company orders the appraisal on the borrower's behalf, and the Appraiser lists that mortgage company on the report. The borrower does have the right to receive a copy; however it's the mortgage company's discretion to give the borrower the original appraisal report.

Who Determines The Market Value Of Your Property ?

The property seller sets the price, especially for residential property, not the Appraiser. Sellers usually don't order an appraisal because they want to obtain the highest price for their home and therefore don't want to be bound by the Appraiser's assessment.

The real estate agent receives a percentage of the price as compensation and often represents the seller in the transaction and assists them in setting the sale price. They perform a Comparative Market Analysis (CMA), which real estate agents in most states are allowed to perform without an Appraiser's License or Certification. The CMA is vital to the agent’s preparation for a listing examining recent property sales in the neighborhood to arrive at a listing price. Typically the agent will suggest a price to the seller based on the CMA however the seller may choose to list their property for a higher price. Source

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What Are Some Mortgage Requirements?

Lenders set minimum mortgage requirements you’ll need to meet to get pre-approved for a home loan;

The higher your credit score, the lower your interest rate will be

A lower interest rate means a lower monthly payment, which makes homeownership more affordable.

The higher your down payment, the lower your monthly payment

A down payment of 20% will help you avoid mortgage insurance if you’re taking out a conventional loan. Mortgage insurance covers the lender’s foreclosure costs if you default on your loan.

The longer the term, the lower your monthly payment

First-time homebuyers typically choose 30-year terms to get the lowest monthly payment.

The less monthly debt you have, the more you can borrow

Clear out those car loans, student loans and credit card balances if you want the most mortgage borrowing power. Source

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NMLS ID # 394275