When you apply for a home loan, one important financial consideration is ensuring you have a down payment set aside. You need to make sure you have enough money saved to not only cover the down payment but, also, additional costs such as closing costs and home appraisal fees.

Option 1: Select a Loan Program with a Lower Down Payment

Certain loan programs allow for a lower down payment than most conventional loans. Typically, with conventional loans, you will need between 10 and 20 percent of the home’s purchase price for the down payment. For instance, on a $250,000 home, you would need, at a minimum, $25,000 up to $50,000.

If you are finding it difficult to save up a large down payment, you should explore various first- time buyer programs, FHA loans, or VA loans. If you qualify for one of these programs, the down payment can be as little as 3 percent of the purchase price. On the $250,000 purchase price in our example, you would only need $7,500 if you were approved for a loan with a 3 percent down payment.

Although you do need to keep in mind, the lender will most likely require you to obtain private mortgage insurance (PMI), which is special insurance to safeguard you and the lender. PMI will add to your total monthly mortgage payment, so you will want to discuss how much more this will be with your Chicago mortgage broker to see if opting for a home loan with a lower down payment fits into your budget.

Option 2: Open a Savings Account

A great way to start setting aside money for a down payment is to open an interest-bearing savings account. As you save, you will earn interest on the money to further help grow your down payment. Make it a habit to set aside as much money as you can each pay period and avoid dipping into these funds unless it is an absolute emergency.

Option 3: Eliminate Unnecessary Expenses

Take the time to sit down and review your monthly bills. Look for items you can do without or cut out to reduce how much money you have going out each month. For instance, cancel cable or satellite TV subscriptions and opt for a cheaper video-on-demand subscription service. You can also cook and prepare meals at home instead of eating out.

In addition, if you have credit cards, remove these from your wallet or purse. If you do not have the cards with you, you will not be tempted to use them and run up your monthly credit card payments.

If you have more than one credit card with available balances on them, consider transferring the balances on higher interest cards to the card with the lowest interest. Not only will this pay off the other cards and help your credit score, but it will also help lower the total amount of interest you will pay back.

Make sure to put any money you cut out of your monthly expenses into your savings account you opened to save up for your down payment.

Option 4: Downsize Before You Upgrade to Your Own Home

For renters, moving into a smaller apartment often translates to lower rent. Even though you might feel cramped or find you have to stack boxes in the corner because you do not have room to unpack everything, remember—your long-term goal is saving up a down payment and buying your own home. Sacrificing on space now for a short period of time will pay off later.

Option 5: Save Any Financial Gains

Put tax refunds, raises, and other bonuses you receive into your savings account instead of spending them. Often, these financial gains can amount to several thousands of dollars, which will significantly increase your down payment savings.

Why Can’t I Just Borrow the Down Payment from a Friend or Family Member?

Unfortunately, you are not allowed to borrow any portion of the down payment from a friend, family member, employer, co-worker, or another lender. All monies used for the down payment have to be documented, showing where they came from, like your savings account. However, lending practice regulations do allow you to accept monetary gifts, which you can use for your down payment, but gifts also need to be well-documented.

By using one or more of the above options, you are sure to have your down payment saved up in no time. To learn more about pre approval for first time home buyer programs with low down payment requirements, or to find out how much of a down payment you need with other loan programs in the Chicagoland area, please feel free to call A and N Mortgage at (773) 305-LOAN (773-305-5626) to speak with one of our mortgage brokers today!