Buying a home is a serious “adulting” move — one that comes with a great deal of financial responsibility. There’s nothing quite like being a first-time homeowner. Yet what many newbie homeowners don’t share is how much hard work and sacrifice it takes to get there. Most people would benefit from taking a step back to look at their finances so they can devise a plan to save up for the down payment. Any lofty goal starts with a solid plan, after all!

Every potential home buyer has their own unique situation, though there are some universal factors to take into account. How much you’ll need to put away will depend on the type of loan you’re seeking. For instance, a conventional mortgage generally requires 5% upfront. A Federal Housing Administration (FHA) loan may make homeownership more accessible, as it only requires a minimum of 3.5% for the down payment.

However, it’s not always that simple. If you have less than 20% of the full purchase price the lender will require private mortgage insurance (PMI) on conventional loans. This additional expense can add up to 1% extra to the loan amount on your house payment annually until your loan is paid down to 80% or less.

This is why most experts will advise you to try to save up to 20% of your ideal home’s value to avoid this extra monthly expense. Plus, if you can put more down, you’ll have equity in the house right from the outset. But that can be a daunting task. For example, a home priced at $200,000 will require $40,000 upfront, and that doesn’t include closing costs or other expenses related to the purchase.

Although 20% of the purchase price is an ideal amount, don’t let this potentially daunting figure keep you from owning a home. Sometimes making a more modest down payment makes more sense. Each situation has its advantages and drawbacks, and you’ll need to weigh them against both short-term and long-term implications.

Regardless of the percentage, it’s important to have a plan so you can stay on track. Most people fund the downpayment expense through cash savings. If this applies to your situation, start by working backward. You’ll need to figure out how much you can comfortably save every month toward a house and then determine how long you’ll need to put away a sum of X amount to achieve the goal.

The time frame will be based on an equation specific to your situation. So, if you need to come up with $20,000 and you can save $1,000 a month, you should be ready to look at homes in about two years, or 20 months. Life happens and you may run into snafus along the way, but it’s important to have a plan that you can try to stick to.

Also, consider ways you can make your money work for you. Placing your money into a checking account isn’t going to yield much return and help you reach your goal faster. However, a high-yield savings or money market account may offer more of an incentive. The same goes for a product called a certificate of deposit or CD. Your banker can help determine which account is best for your situation.

If you have specific questions about saving for a down payment, you don’t have to go it alone. When you work with us, you benefit from a 25+ year history of success built on three key things: Integrity, Reputation, and Commitment! Contact us today to experience the Allied Mortgage difference: