Looking to buy your first home here in beautiful Hawaii? If so, then you’ll need to get your finances in order. Aside from getting pre-approved for a mortgage, you’ll also need to save up a chunk of money to cover such expenses as closing costs and, of course, your down payment.

So, what exactly is a down payment—and how much do you need to save? We’ll cover all this and provide you with some resources for down payment assistance here.

Understanding Down Payments

Specifically, a down payment is a sum of money that you pay out of your own pocket towards a new home. Most mortgage lenders require borrowers to pay a certain percentage of their total loan amount as a down payment. For example, if you’re buying a home for $200,000 and are making a 10% down payment, you’ll need to pay $20,000 out of your own pocket. You’ll be borrowing the remaining $180,000 from your lender.

The larger the down payment you make, the less money you’ll need to borrow (which saves you interest over time). On the other hand, making a large down payment isn’t always practical or feasible—especially for first-time buyers.

How Much to Save for a Down Payment

The amount you’ll need to save for a down payment can vary greatly based on the type of mortgage for which you qualify. Some types of home loans, such as VA and USDA loans, require as little as 0% down. Conventional loans, on the other hand, typically require at least a 20% down payment in order to avoid paying mortgage insurance.

Realistically, first-time buyers who don’t qualify for a VA or USDA loan will want to look into an FHA or similar loan option that requires about 3%-3.5% down. On a $200,000 home, this means you’ll have to put around $6,000 down. This tends to be more practical for first-time buyers, especially when you consider that you may also have to pay closing costs and other fees that can quickly add up!

In general, it’s best to save up as much as you comfortably can for a down payment. A larger down payment will mean less money borrowed and lower monthly payments on your mortgage. The key is to make sure you’re still leaving yourself with enough money in your savings account to pay for closing costs and other expenses related to your move. And of course, you’ll still want to have a buffer for emergencies and other unforeseen costs. Figuring out how much you need to save for a down payment on your first home can be tricky, but Jade Halama is here to help. Reach out today to get started in finding your first home here on the Big Island!