The larger your down payment, the more you save long term

You can save thousands of dollars by simply providing a healthy down payment on a home. The larger the down payment the less you need to borrow. You will be able to negotiate a lower interest rate, avoid expensive mortgage insurance fees and take on an overall more manageable cost of borrowing..

Typically, a down payment of 20% is considered ideal , while 5% will do along with enough funds for closing costs and payment reserves. However the idea that you need to save $40,000 as a down payment on a $200,000 home can be overwhelming. Below you will find some helpful tips on how to effectively save for your first down payment and make it go further.

1. Look to your 401K. Most plans allow funds to be pulled out for a limited amount of time towards your down payment on a home purchase. You will need to repay these funds within a certain timeframe, usually about 5 years, but they can provide the cash you need now for your home. If you don't want to pull more out of your retirement savings you can often use the account stored in your 401K or IRA toward your payment reserve requirements. A lender wants to see that you have at least 3 mortgage payments saved up and in your reserves, but you can use the money stored inside your 401K toward this amount if necessary.
   
   
2. Pay off your high cost debt. Remember to save, but always pay off your high-cost debt as fast as possible. Any debt with double digit interest rates should be paid off as quickly as possible.
   
   
3. Look for a less expensive home. It may mean you look in a different area or at smaller homes, but if you're looking for your first starter home, you may want to change your expectations to include homes that actually fit within your down payment required parameters.