Step 3: Saving for Your Down Payment and Closing Costs

Step 3: Saving for Your Down Payment and Closing Costs

One of the biggest hurdles for first-time home buyers is figuring out how much money they need to buy a home. The good news? You don’t always need 20% down, and there are programs and strategies to help you save faster. Let’s break down what you need to know about down payments, closing costs, and tips to get you into a home sooner.

Down Payment Options for First-Time Buyers

The old rule of putting 20% down isn’t always true anymore. While 20% has benefits (like avoiding mortgage insurance), there are many options for buyers with smaller savings:

• Conventional Loans: As little as 3–5% down with good credit.
• FHA Loans: As low as 3.5% down, designed for first-time buyers or those with lower credit scores.
• VA & USDA Loans: 0% down payment options for qualified veterans and buyers in rural areas.
• Traditional 20% Down: Still an option if you want to avoid private mortgage insurance (PMI) and lower your monthly payments.

The right choice depends on your financial situation, credit score, and long-term goals.

What Are Closing Costs?

In addition to your down payment, you’ll need to budget for closing costs, which usually range between 2–5% of the loan amount. These costs cover the professionals and services that make your purchase possible. They may include:

• Loan origination fees
• Title search and insurance
• Appraisal and inspection fees
• Prepaid property taxes and homeowner’s insurance
• Recording fees and other administrative costs

For example, on a $200,000 home, closing costs might range from $4,000 to $10,000. Knowing this in advance prevents last-minute surprises.

Tips to Save Faster

If saving feels overwhelming, you’re not alone. Here are some strategies that can help:

• First-Time Buyer Programs & Grants: Many states, counties, and even employers offer down payment assistance. In Minnesota, there are programs that can help cover part of your down payment or closing costs.
• Gift Funds: Many loan programs allow family members to gift money for your down payment.
• Automate Your Savings: Set up a separate savings account and have money automatically transferred each month.
• Cut Extra Expenses: Even small lifestyle adjustments—like cutting subscriptions or eating out less—add up quickly when you’re saving for a home.

Final Thoughts

Saving for your down payment and closing costs might feel like a challenge, but with the right plan and resources, it’s more achievable than most buyers think. The key is knowing your options, using available programs, and starting with a realistic budget.

If you’re a first-time home buyer in Bemidji, MN, our team can connect you with local lenders who specialize in first-time buyer programs and down payment assistance.

👉 Ready to start saving for your first home? Contact us today and let’s build a plan to get you into your new home sooner than you think.