How to create a budget for your home
Save for a deposit
You will need to include savings costs for a advance payment when budgeting for a home purchase. The amount you will need to deposit varies, however.
If you get a down payment of at least 20% of the purchase price of your home, you won’t have to pay for private mortgage insurance, or PMI, a type of insurance that protects your lender if you stop making your mortgage payments. The challenge is that 20% can be a lot of money if you live in an area with high housing prices. Consider that 20% of a home costing $425,000 (the national median list price according to realtor.com) comes to $85,000, which is not an easy sum to come up with.
Luckily, you don’t need 20% down payment. You may qualify for an FHA loan with a down payment of just 3.5% of the final purchase price of your home if your FICO® credit score is at least 580. And you may also qualify for conventional loans which require down payments as low as 3% of the purchase price of your home. That’s a big difference: 3% of a house that costs $425,000 is $12,750 is still a lot of money, but not as much as you would pay for a 20% down payment. .
It can make financial sense to make as large a down payment as you can afford. Lenders typically reward borrowers with lower interest rates based on larger down payments, which could save you tens of thousands of dollars over the life of your loan.