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How to Properly Save Money for a Home

Purchasing a home is the biggest investment that most people will ever make in their lifetime. Saving for the down payment is beneficial because it locks in on a lower interest rate. Closing with a larger down payment will naturally result in a lower house payment and less paid in interest.

How Much Should You Save?

Traditionally, lenders in the past required 20 percent of the amount of the loan as a down payment. Today, many loans are available to purchase requiring much less; and some loans require no money down. Trying to achieve 20 percent at the closing should be attempted because it benefits the buyer by eliminating required mortgage insurance.

In some cases, taxes and homeowner’s insurance are not required to be included with the monthly house payment in an escrow account once 20 percent of the loan has been paid. Having 20 percent or more down at closing is also of significant benefit because it provides instant equity to the new purchase.

Planning for Home Ownership

The most crucial step to take when it is decided to save for a home is to draw up a plan. The plan should include the amount of mortgage that can reasonably affordable, taking into account the additional expenses of taxes and homeowner’s insurance.


After a reasonable mortgage amount is determined, plans should be made to save a certain amount of money each week or month. The saved money should be considered sacred and be in a separate account. If an additional account is not already opened, a new one should be activated.

What is the Best Way to Save?

A traditional savings account with the local bank is not the best way to save for a home. While traditional savings accounts yield approximately one percent APY, money market accounts can bring up to five percent APY. Once the savings begin to grow, five percent can begin to make quite a difference.

Another great way to save for a new home is to purchase a Certificate of Deposit, or CD. CDs also pay higher yields and are insured by the Federal Deposit Insurance Agency (FDIC) at traditional banks and the National Credit Union Administration (NCUA) at credit unions.

Unlike money market accounts that have some volatility, CDs have a fixed term. They are also advantageous for savers who may be tempted to dip into the account because they are only accessible after a set amount of time, usually from three months to five years. The longer the time frame for the CD, the higher in interest it will yield. Cashing in a CD early will result in a high penalty.

Saving for a new home can seem like a daunting task at first, but with proper and reasonable planning it can be accomplished.

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