Cape Coral Florida's Real Estate Guide

It's a dream of many young adults to buy a first home. But there's an unfortunate reality: Even buying a "starter home" can mean saving tens of thousands of dollars for a down payment. How do you pull it off? The key, obviously, is to save like crazy. Beyond that, here are 4 tips that may make the path to home ownership a bit easier.

1. Separate Your Down Payment Savings

Set up a separate account for your down-payment funds, so the money doesn't get intermingled with other savings and you can keep track of how much you save. This would probably be a taxable account at a bank or brokerage firm. Set up regular automatic deposits from a checking account into the down-payment account to force regular savings. It's a surefire way to save the money before you get a chance to spend it.

2. Shoot For A 20% Down Payment

While you may be able to away with putting only 10 percent of the purchase price down, only do this if you are confident your income will remain steady or grow and you plan on keeping the home at least five years. For most, it is a wise idea to have 20 percent of a home's purhcase price as a down payment. Why? If the home falls in value and you sell at a loss, you'll owe more to the lender than you receive from the buyer. In addition, many mortgages require buyers who put down less than 20 percent to get private mortgage insurance, which can add $80 to $100 to your monthly bill. And the less you put down, the higher your loan balance and therefore your monthly payment will be. You'll also need to save money for closing costs, such as title insurance and mortgage fees. Figure that closing costs will be about 2 percent of your loan value. You should also put money aside for points to lower your mortgage rate. If you plan to stay in the house for several years, you can save money after several years by paying points with each point equaling one percent of the loan value.

3. Consider Your Home Buying Timeline

How best to invest down-payment money depends on when you plan on purchasing a home. Those planning to buy in three years or less should put the money in conservative investments such as short-term certificates of deposit or short-term bond mutual funds to shield themselves from potential market downturns. If you're waiting at least five years to buy, you can invest more aggressively. A balanced mutual fund that invests in, say, 60 percent stocks and 40 percent bond is a good choice and should perform better over the longer period.

4. Research Down Payment Assistance Options

Few first-time buyers pony up the entire down payment on their own. Nearly a quarter of down payments from first-time buyers are gifted by relatives and friends, according to a recent survey by the National Association of Realtors. Although such assistance is great, there are also other places you can look. There are many down-payment assistance programs for first-time buyers that are offered by banks, local governments and charities. Many are open only to low- or moderate-income buyers and some are targeted to specific communities. It's always good to check because you may be surprised at income levels that qualify, especially if you live in a high-cost area. Some programs lend buyers a substantial portion of the down payment. Many lenders have information about assistance programs.