How Our Michigan Bank Can Help You With Your Savings Goals
Buying a house is probably the biggest investment you’ll make in your life. And if you’re like most Americans, you’ll stay in your new home at least 10 years. While finding a house that’s right for you and your family might be challenging, saving money for a down payment doesn’t need to be stressful.
Banks in Michigan (and across the U.S.) have developed several strategies to make saving money for a down payment on a home a little easier. To help determine your savings goal, you’ll need to address the following questions:
- How much money will you need to save? Your answer depends on a few factors:
- The amount of money you’re eligible to borrow for a mortgage. Many banks, including Level One, have online mortgage calculators and easy access to mortgage bankers to help you estimate payments you’ll be able to afford.
- The down payment percentage. You’ve likely heard that a 20 percent down payment is best. But 20 percent down isn’t always a requirement, especially nowadays. Putting more money down might reduce your monthly payments, since you won’t be required to buy mortgage insurance. Your ability to make a larger down payment also gives you more financial freedom to buy a larger home.
Becoming a homeowner is still possible, even if you don’t have funds for a 20 percent down payment. Options like FHA loans are available that may require as little as 3.5 percent of the house purchase price. VA loans backed by the Department of Veterans Affairs may have no down payment requirements for qualified buyers. Several banks in Michigan, including Level One, also offer loans with small down payments to first-time or lower-income buyers.
- When do you want to buy? If you're planning to buy a home in 5 years, your annual savings goals will be less than if you're going to buy next year.
- Where will you keep the money you’re saving for a home down payment? Since you’re likely to need down payment funds in a short timeframe, most banks recommend that you avoid tying up your money in a long-term investment. Instead, look for ways to make your money work for you while keeping it accessible, such as:
- A traditional savings The initial interest you’ll earn on your savings might be low, but many banks have tiered interest rates that increase as your savings grow.
- A money market savings Your money may earn more interest than traditional savings accounts, especially for larger balances.
With a savings target, timeframe, and savings account set, you're ready to start your journey toward homeownership.
Down Payment Savings Strategies
You have several strategies available to help you save money for a house down payment. Some people reach their savings goal with one approach; others use multiple strategies. Customize your savings strategy so that it works for you and your family.
- Reduce discretionary spending. Review your monthly budget and see where you might cut back on expenses like clothing, movie tickets, or dining out.
- Create an automatic 'house down payment' deposit. Work with your bank to set up a monthly deposit from your paycheck to your savings account. The automatic deposits allow you to 'pay yourself' first.
- Allocate any bonuses to your down payment. If you receive an annual bonus or a tax refund, plan to save it for your home purchase.
- Temporarily reduce your retirement savings. If your employer offers a 401K or other retirement savings tool, consider cutting back on the amount you have withdrawn for these accounts. Shift the money into the down payment account for your house until you reach your goal.
- Skip your annual vacation trip. The average vacation costs $1,200 per person. A 'stay-cation' or traveling locally in Michigan will offer relaxation and memory-creating experiences while boosting your down payment savings.
- Use a cash-back credit card. Bank your cash rewards from using your cash-back credit cards. Many banks will allow you to have rewards automatically transferred to your savings account.
- Get creative with money-making ideas. Look around your house for items with value that you’re no longer using and could sell, like books, clothing, or furniture. If you have time, explore side hustles for extra income like doing surveys, tutoring, or mystery shopping.
When you’ve reached or are near your down payment savings goals, it’s time to start house-hunting.
Putting Your Down Payment Toward a Home Purchase
Banks in Michigan recommend completing a mortgage application and reviewing your financing options (including your down payment) early in your home search process. Being prepared with savings and getting prequalified for a mortgage will give you peace of mind that you’ll be able to handle the financial responsibility of owning a home.
When you’re ready to start shopping for the house of your dreams, contact the Level One Bank mortgage bankers. As one of the best banks in Michigan, we’re committed to helping you reach your goals and enjoy your new home.
"Homeownership is the cornerstone of a strong community." – Rick Renzi