Buying a home has become a lot harder with the record low levels of supply in many housing markets, as well as dramatic shifts in what is considered a desirable location, due to unprecedented changing work patterns caused by the global pandemic and communications technology.
Still for some, buying a house has never been more accessible due to historically-low interest rates, a rising stock market, and in many markets, liquidity events from IPOs or the sale of another property.
No matter what your situation, having sufficient funds for a down-payment matters more than ever at a time when bidding wars have become common.
How Much Is Needed for a Down Payment
For a conventional mortgage, banks require that buyers put up at least 3% of the purchase price in equity. But for jumbo mortgages, most banks require a minimum 20% down payment.
Obtaining a pre-approval letter from a bank generally requires that the buyer demonstrate that they have sufficient liquid funds to meet the minimum down payment.
Savvy prospective buyers ensure they have all their ducks in a row before they start looking – whether for a starter home, a “dream house,” a so-called forever home, or a weekend/vacation home. You’ll need 1% of the value in earnest money and 20% or more as a down payment, in most cases. Many banks like to see at least three months of living expenses (including mortgage payments, HOA fees, and property taxes) in savings post-closing.
How To Increase Your Deposit
First, you need to start with the basics. Working with your financial advisor or on your own, you can craft a plan to consistently save money, as part of your broader financial plan.
Whether you set aside a certain amount from your paycheck, or reserve a portion of any commissions or annual bonuses you receive each year, savings play an important role in ensuring you have sufficient funds to make your down payment.
You can increase your savings by being smarter about where you keep your money. Storing money in a savings account at a traditional brick-and-mortar bank is often not the best option. The national average interest rate paid on U.S. saving accounts is currently just 6 one-hundredths of 1%, or 0.06%. You can do better.
Moving your funds to an online bank or other high-yield savings account is a good first step. You can generally earn more by researching which banks pay higher interest rates. But note that rates change frequently so you’ll need to keep on top of your banks to make sure they’re still offering competitive yields.
Other Ways To Grow Your Down Payment
Many big banks profit by encouraging consumers to concentrate all their accounts with one bank, when they could do better by shopping around. Platforms like MaxMyInterest (“Max”) help you find and earn the best rates, even as rates change.
For those looking to buy a large home or an apartment in a city like New York or San Francisco, you may need to set aside more than $250,000. Max helps members keep their money allocated across multiple banks, so that they can increase their FDIC insurance coverage, up to $8 million per couple.
Max helps customers access even higher rates than you might find from a typical high-yield savings account. By reallocating your funds to the highest-yielding accounts each month, you can grow your savings even faster.
To learn more about Max and how Max helps depositors earn the highest possible yield on their own FDIC-insured bank accounts, please see: How does Max work?
No matter how much you’re looking to set aside for your purchase of a new home, it pays to be smart and look into all the ways to position yourself for su