How Much Should You Save for a Down Payment in Idaho?

One of the first steps you take before buying a house in Idaho is establishing a down payment. A down payment is a percentage of the total cost of a house. For the rest of the cost of the house, homeowners seek a mortgage loan. The larger your down payment, the smaller your mortgage loan or payments will be. In addition, larger down payments may come with additional benefits in your loan agreement, such as a lower interest rate or not needing private mortgage insurance (PMI) — a fee you pay your lender to protect their investment if you can’t pay your monthly mortgage bill.

 

To minimize the size of their loans and receive these benefits, many homeowners strive to pay at least 20% of the total cost of their house for their home. Unfortunately, this isn’t always attainable for everyone, especially if you consider other costs associated with buying a house, such as closing costs, insurance, repair costs, home inspection fees, and moving expenses. That isn’t to say you can’t buy a house if you don’t have 20% for a down payment. You can, you just have to factor in the following considerations.

How Much Do You Need for a Down Payment for a House?

Most homeowners strive for 20% to obtain the benefits mentioned earlier. So, if you were to buy a house that cost roughly $450,000, the average cost of a house selling in Idaho as of 2024, you would need to save $90,000. However, this isn’t the minimum requirement to buy a house. Instead, you can expect the minimum requirements to vary depending on the loan. Here’s a breakdown of the common loan types, their typical down payment requirements, their eligibility, and how these translate into actual dollar amounts based on a $450,000 home:

 

  • Conventional loans: These include any loans that aren’t part of a government assistance loan program, and you’ll need to pay at least 3%, translating to $13,500. To qualify, you’ll need a credit score of at least 620, proof of reliable income, and a debt-to-income ratio of less than 43% or lower depending on the loan program.
  • FHA loans: Backed by the Federal Housing Administration, these loans open homeownership to people who may have a lower credit score or be unable to provide a 5% down payment. Instead, their loans start at around 3.5%, translating to $15,750. To qualify, you’ll need a credit score of at least 580.
  • VA loans: VA loans are available to veterans and active-duty military personnel, and VA loans often require no down payment, which is $0. To receive a VA loan, you only need to have 181 days of service in the military.
  • USDA loans: These loans are mainly available to homeowners looking to buy rural property and include no down payment. To receive a USDA loan, you need to prove that you are a reliable source of income and a U.S. citizen.

 

Providing little to no down payment does come with its drawbacks. Including the risks already mentioned, like higher interest rates, higher monthly payments, and having to pay private mortgage insurance (PMI), you could also lose home equity if the housing market drops. Although losing equity is a risk in nearly every home-buying experience, it can be more risky if you place little to no down payment. You’ll owe significantly more money on the house than what you could afford in the first place if you need to sell it in the future, and it won’t have as much value due to market conditions.

That said, lower down payments do come with the following benefits as well:

 

  • You’ll have more money to save for other expenses, such as home repairs, furnishings, or emergency funds.
  • You can enter the housing market sooner, which can be great during prime housing market conditions, like when housing costs are lower.
  • You’ll achieve a major life milestone, even if you don’t have the funds to make a 20% down payment.

Because of these benefits, many accept the risks and seek low down payment options.

Understanding Down Payment Assistance in Idaho

Most home loans, even those that allow you to play minimal down payments, still require at least 3% of a down payment, which can be difficult to manage for Idahoans competing in the current housing market.

 

In addition to some of the federal loan programs listed above, such as VA, FHA, and USDA loans, there are also regional programs that can help with down payment assistance, including:

 

  • NeighborWorks® Boise: As the only nonprofit mortgage broker in Idaho, NeighborWorks provides down payment assistance and forgivable grants for up to $100,000 in down payment funds. To qualify for the program, you must be at or below the Area Median Income (AMI).
  • Idaho Housing and Finance Association: A statewide housing agency that provides down payment assistance through a second mortgage or a forgivable loan. Essentially, you would only need to provide .5% for the down payment, and Idaho Housing and Financing would provide the rest to qualify for your loan’s minimum requirements. If you can’t pay off this second loan within ten years, they will often forgive it. To qualify, you must earn less than $150,000 as a household and take a homebuyer education course.
  • City of Boise Housing Opportunity Program: Through funds provided by grants from the U.S. Department of Housing and Urban Development, this city-wide program offers financial assistance to pay your down payment or closing costs up to $45,000. To qualify, you must have a household income between 50-80% of the AMI.
  • Home$tart: A federal grant program established by the U.S. Department of Housing and Urban Development that provides up to $15,000 in down payment assistance. To qualify, you must take a homebuyer education course and have a household income below the AMI.

 

You must apply for any of these programs and submit  paystubs, W-2 forms, Federal tax returns, state-issued ID or permanent resident card, bank statements and proof of residence. This formal documentation proves that you need down payment assistance and are reliable enough to contribute to the loan.

First-Time Home Buyer Savings Accounts in Idaho

Utilizing a first-time home buyer savings account is another option to help build your down payment. These accounts are state-sponsored programs that allow prospective home buyers to save money specifically for their first home purchase to receive tax benefits. Contributions to these accounts are typically tax-deductible, and the interest earned is often tax-free, helping savers accumulate funds more efficiently. Setting aside money in these accounts allows first-time buyers to systematically build their down payment.

Most banks or credit unions have these accounts, so you only need to apply at your local branch and contribute regularly. The only caveat is that you must not exceed their contribution limits — you can only contribute up to $15,000 as a single person or $30,000 as a married couple a year. These accounts also have lifetime caps of $100,000, so they’re not a permanent account solution. It’s also best to start these accounts immediately to reap the tax benefits. So if you want to buy a house as soon as possible, this may not be the right option. You can consult a financial advisor to determine if it suits your goals.

Image Source: Pexels

Financial Considerations Beyond the Down Payment

A down payment isn’t the only thing you should consider when buying a house. Your credit score is also a significant factor in the house-buying process. If you have a higher credit score, you’ll have more loan options, proving you are a trustworthy investment to lenders. Buyers with higher credit scores may also have more favorable interest rates and lower monthly mortgage payments, making their mortgage more manageable to pay off.

To build your credit score and receive these benefits, do the following:

  • Build your credit history: Lenders are more likely to trust you if you can show a reliable history of taking out loans and credit cards and paying them off.
  • Pay your bills on time: Likewise, showing that you pay off your bills on time will show how reliable you are. Automating your payments can simplify this process.
  • Check your credit score regularly. Keeping tabs on your credit score can help you determine what you’re doing well and what you can improve.
  • Minimize your debt: Your credit history also considers your debt-to-income ratio. Although eliminating debt entirely can decrease your credit score, minimizing it can also help it.
  • Avoid taking out a loan before buying a house: The first months after taking out a new loan — whether personal, auto, or other type — can dip your credit score, potentially minimizing your chances of buying a home.

If you need further guidance, you can also contact a financial advisor or housing counselor, who may spot other credit habits that can improve your score.

Additional Costs in Home Buying

When people save for a house, they typically see the shining goal of a down payment and put their blinders up for all the other costs. However, these other costs are abundant and can quickly put you in the red if you don’t account for them:

  • Closing costs: Includes appraisal fees, the title of the house, attorney fees, and more. Typically, closing costs range from 3% to 6% of the home’s purchase price.
  • Property taxes: Property taxes are annual taxes paid to local governments based on the property’s assessed value. The amount varies depending on the location and value of the home.
  • Homeowners insurance: This insurance protects your home and personal property from damage or theft. Lenders usually require it, and the cost can vary based on the home’s value, location, and coverage level.
  • Inspection fees: Before finalizing the purchase, a home inspection identifies any potential issues with the property. Inspection fees can range from $300 to $500, depending on the size and location of the home. You may also need to account for any fees for repairs found in the inspection, which can cost thousands of dollars.
  • To account for these costs, you must do your research beforehand. This includes researching the property value of other houses in your area that may give you a reasonable understanding of taxes and insurance. You can also seek quotes from local inspectors and home insurance providers to see what you might expect. Once you calculate this with your down payment, you can see how feasible a monthly mortgage payment would be.

Image Source: Pexels

Planning Your Home Purchase

Although some people look at their monthly income and assume that is the baseline of their mortgage payment to decide whether they can afford a home, this isn’t theoretically possible. Doing so would make them “house-poor” and might prevent them from affording other necessities such as food, transportation, childcare, entertainment, and more.

 

To avoid this, you must calculate your monthly income and expenses. Consider current debt, necessities, and saving funds when calculating your expenses. From here, you can understand what funds you may have left to pay for housing. Generally speaking, many financial experts recommend you don’t spend more than a third of your income on your housing, including your mortgage, insurance, PMI, and more. You can also use online calculators that show you what your monthly payments may look like depending on your credit score, down payment, and the cost of the house.

 

In addition, it’s important only to make these calculations if you have emergency savings underfoot in case you lose financial security. As a rule of thumb, your emergency savings should be about six months of income to keep you stable while you find financial security.

Down Payment Timing and Procedures

Once you figure out what you can reasonably afford every month, you can start saving for your down payment. When saving for a down payment, you should budget accordingly by cutting out needless expenses or earning more income with a second job. You can also seek out some of the aforementioned down payment assistance programs if you’re having trouble.

 

Once you save your down payment, you can go through the home-buying process, which includes:

 

  1. Gain pre-approval from a lender
  2. Find a realtor and place an offer on a home.
  3. Once the seller accepts your offer, you’ll work with your lender to finalize the mortgage. This involves completing the loan application, providing necessary documentation, and securing loan approval.
  4. Schedule the closing date with your lender, real estate agent, and seller.
  5. Open an escrow account to hold funds for property taxes, homeowners insurance, and sometimes other expenses. This account ensures these payments are made on time and protects both the buyer and seller during the transaction process.
  6. Obtain a cashier’s check or wire transfer for the down payment, closing costs, and any funds needed for the escrow account.
  7. Review and sign closing documents, including the mortgage agreement, title transfer, closing disclosure, and escrow instructions.

 

After this, you can pat yourself on the back because you’re a new homeowner!

Long-term Impacts of Your Down Payment

When planning their home purchase and down payments, many people see it as an investment opportunity. Like with any investment, your choices here can propel your funds further. For example, if you were to pay a small down payment, you may have a larger loan, but you could have more funds for other investment opportunities such as a retirement fund, stocks, bonds, etc. Many experts define this method as “diversifying your investment portfolio.”  That said, a larger down payment can also give you a larger return on your investment when you sell the house.

 

Your down payment comes down to you and your financial goals. No matter your financial goals, though, NeighborWorks® Boise can help you. Contact us today for financial coaching and down payment assistance so you can live in the house of your dreams.

Resources for First-Time Home Buyers in Idaho

Building a down payment doesn’t happen overnight, nor should you expect yourself to do so. Instead, it involves educating yourself on budgeting, mortgage loan options, and seeking help. If you need more information and time to build your down payment to become a homeowner, check out these resources that can help you:

Local Nonprofit Organizations

NeighborWorks® Boise

  • Description: A non-profit organization dedicated to opening ownership to low- to moderate income families in Idaho.
  • Services: NeighborWorks® provides down payment assistance, education, and one-on-one support in the homeownership process.
  • Website: https://nwboise.org/

Leap Housing

  • Description: A nonprofit organization committed to affordable housing for low- to moderate-income families.
  • Services: Leap provides down payment assistance, education, and resident owned communities (ROC).
  • Website: https://www.leaphousing.org/

Autumn Gold

  • Description: A non-profit organization dedicated to opening ownership to very low, low, and moderate-income households. And to coordinate supportive services for low-income seniors.
  • Services: Autumn Gold offers down payment assistance.
  • Website: https://autumngold.org/

First Story

  • Description: A non-profit organization dedicated to homeownership for households that make less than 80% of the Area Media income.
  • Services: Offer 0% loans on brand new or freshly renovated Hayden Homes.
  • Website: https://www.firststory.org/states/idaho

State and Federal Programs

Idaho Housing and Finance Association (IHFA)

  • Description: State organization that stabilizes the housing crisis by providing shelter for people experiencing homelessness, education for financial independence, and down payment assistance loans.
  • Services: Offers a variety of assistance programs, including forgivable loans or low-interest rate loans.
  • Website: https://www.idahohousing.com/foundation/

Federal Housing Administration (FHA) Loans

  • Description: Federal agency that offers financial assistance to those looking to buy a house who may not be able to afford it through conventional loan methods.
  • Services: Provides loans even if you have a low credit score and a small down payment, starting at 3.5%
  • Website: https://www.fhaloans.com/

Veterans Affairs Loans

USDA Single Family Housing Guaranteed Loan Program

Online Tools and Calculators

Mortgage Calculator

  • Description: Provides an estimate of what mortgage you could qualify for based on your income, down payment, credit score, and desired monthly payments.
  • Website: https://www.mortgagecalculator.org/

Experian Free Credit Score Report

  • Description: Offers a free credit report that you are legally entitled to at least once a year to understand your mortgage better.
  • Website: https://www.experian.com/

Educational Resources

Consumer Financial Protection Bureau (CFPB)

  • Description: A U.S. government agency that provides education so you know you’re being treated fairly by lenders and banks.
  • Resources: Provides articles for consumer education and publishes research on American consumer spending.
  • Website: https://www.consumerfinance.gov/

NeighborWorks® Boise’s Housing Coaching

  • Description: Idaho-based nonprofit that aims to open homeownership to all families through education or financial assistance.
  • Resources: Provides a variety of coaching classes and one-on-one sessions, including pre-purchasing coaching, homebuyer education, financial fitness coaching and foreclosure prevention counseling.
  • Website: https://nwboise.org/homebuyer-education/

National Foundation for Credit Counseling

  • Description: A nonprofit organization to help American citizens achieve financial freedom.
  • Resources: Provides free to minimal-cost counseling to improve your credit score, adjust your budgeting habits, and complete financial goals, such as establishing a down payment fund.
  • Website: https://www.nfcc.org/

FAQs About Down Payments in Idaho

What Is the Minimum Down Payment Requirement For a Home in Idaho?

The minimum down payment required for a home in Idaho depends on the loan type. Conventional loans typically range from 3% to 20% of the purchase price. FHA loans require a minimum of 3.5%, while VA and USDA loans may offer zero down payment options for eligible buyers.

Are There Down Payment Assistance Programs Available in Idaho?

Yes, there are several down payment assistance programs available in Idaho. We at NeighborWorks® Boise offer grants and loans for first-time homebuyers. The Idaho Housing and Finance Association (IHFA) also provides various assistance programs that can help cover down payments and closing costs.

How Much Should I Save For a Down Payment?

The amount you should save for a down payment depends on the price of the home you want to buy and the type of loan you plan to use. Most experts recommend saving at least 20% of the home’s purchase price to avoid private mortgage insurance (PMI). However, some programs allow for lower down payments, such as 3% to 5%.

What Are Some Strategies for Saving For a Down Payment?

Effective strategies for saving for a down payment include setting a budget, cutting unnecessary expenses, automating savings, and setting up a dedicated savings account. You can also consider additional income streams, such as a part-time job or freelance work, to boost your savings.

Can I Use Gifts or Grants For My Down Payment?

Yes, you can use gifts or grants for your down payment. Many loan programs allow down payment funds from family gifts or approved grants. Documenting these funds properly is essential, as lenders will require proof of the source and that they are indeed gifts, not loans.

How Does My Credit Score Affect My Ability to Save For a Down Payment?

Your credit score can impact your ability to save for a down payment by influencing the interest rate you qualify for on a mortgage. A higher credit score typically means a lower interest rate, reducing monthly payments and making saving easier. Additionally, some down payment assistance programs have minimum credit score requirements.

Are There Special Programs For First-time Homebuyers in Idaho?

Yes, there are special programs for first-time homebuyers in Idaho. NeighborWorks® Boise offers coaching and financial assistance specifically for first-time buyers.  IHFA also provides programs like the First Loan, which offers low fixed interest rates and down payment assistance for first-time homebuyers.

Can I Buy a Home with Less Than 20% Down?

Yes, you can buy a home with less than 20% down. Many loan programs like FHA, VA, and USDA loans allow lower down payments. However, if you put down less than 20% on a conventional loan, you will likely need to pay for private mortgage insurance (PMI).

How Long Does Saving For a Down Payment Typically Take?

The time it takes to save for a down payment varies based on your financial situation, income, and savings strategies. On average, saving enough for a substantial down payment might take several years. Using budgeting tools and financial planning can accelerate the process.

What Other Costs Should I Consider When Saving For a Home Purchase?

In addition to the down payment, you should save for other home purchase costs. These include closing costs, which typically range from 2% to 5% of the home’s purchase price, moving expenses, home inspection fees, and setting up an emergency fund for unexpected repairs and maintenance.