Buying a home is the biggest purchase most people have ever made. And if you plan to finance your home purchase, you’ll need a sizable down payment – ideally up to 20% of the purchase price, to avoid the added cost of private mortgage insurance (PMI).
Unless you already have cash, you need to do so Save money on down payment over time. But where should you save your money?
Many people save money in their checking or savings accounts. However, if you want more earning opportunities without compromising the security of FDIC insurance, consider saving your money in a high yield savings account.
Opening an online high yield savings account is easy. You can Compare the savings rates of several banks in one place in the Credible marketplace.
How Much Money Should You Save Before Buying a Home?
At least you have to Save enough money for a down paymentThis could range from 3.5% of the purchase price for a government-sponsored FHA loan to 20% for a conventional mortgage.
Another hassle to save is closing costs, which cover property transfer taxes, mortgage taxes, valuation fees, property insurance, and other fees. Closing costs are typically between 2% and 2.25% of the purchase price of the home. This means that for the US average price of $ 313,000, the closing cost would be between $ 6,260 and $ 7,042.50.
Your lender may also require that you have enough cash after you close to be able to make mortgage payments in the first few months. So if you estimate your mortgage payment, including interest, taxes, and insurance, to be $ 1,500 per month, save an additional $ 3,000 to account for the first two mortgage payments.
Before applying for a mortgage loan, it can be helpful to do the numbers with one Online mortgage calculator like Credible to determine your potential monthly payments.
How to choose a high yield savings account
Here are some of the Main factors to consider When Buying a High Yield Savings Account:
1. Interest rate. Recently FDIC data lists the national average interest rate on savings accounts at 0.04% APY, taking into account both average deposits and jumbo deposits over $ 100,000. Traditional brick and mortar banks perform worst, often offering 0.01% APY on their savings accounts.
According to the contract, your money can earn up to 0.90% annually on a high-yield account. Explore Credible to discover online savings account options that could bring you more money.
2. Fees, Limitations, and Requirements. High savings rates are a huge benefit, but not when offset by excessive fees. Make sure to read the fine print to make sure that transaction fees, overdraft fees, monthly fees, or maintenance fees aren’t ruining your earnings. Other factors to consider are the Terms and account regulations that some banks enforce, such as: B. Minimum balance or transaction limits and a minimum deposit.
3. Insurance. Before signing up for an account, make sure the bank is insured with the FDIC or the National Credit Union Administration (NCUA). This protects the savings in your account – up to $ 250,000 – should the bank fail for any reason.
How do you use a high yield savings account?
Here are some of the best reasons How to Store Your Money in a High Yield Online Savings Account:
- Emergency savings. Have a Emergency fund can help you weather unexpected expenses or tough economic times such as we are going through. A high yield savings account is insured up to $ 250,000 so you can be sure your money is safe and have quick access to your money when you need it.
- Short term savings. If you’re saving up for a short-term goal within a year or two – say, a new car or a family vacation – consider putting your money in a high-yield savings account that offers high returns instead of a checking account. Don’t make the mistake of locking your money on a deposit slip (CD) as it can be difficult to access your cash when you need to pay a down payment on a home. When you’re ready to buy a home, the last thing to think about is the early withdrawal penalty that comes with most CDs.
- Big issues. Thanks to the savings rates, your money will earn more with compound interest on a high-yield savings account. The higher return on your money can be a nice boost when you’re saving up on a large purchase, such as a down payment on a house. You need all of the breaks that you can get when saving for a big purchase like a home.
Are high-yield savings accounts worthwhile?
High yield online savings accounts are often viewed as a low risk option to save for a short term goal. They offer both the security of federal insurance to protect your money and a savings rate that is considerably higher than with a conventional savings or checking account.
The main advantage of high yield savings accounts is that significantly higher APY rates compared to conventional savings accounts, often 10 to 20 times as much as with some online banks. If you don’t need a stationary location for your savings, online savings institutes may be your best option.
Visit Credible to learn more about saving for a deposit. You can Explore your home loan options to see how much money you need on a mortgage.
Do you have a finance-related question but don’t know who to ask? Email the expert for credible money below [email protected] and your question could be answered by Credible in our Money Expert column.