The Biggest Closing Cost of All

Most line items are small change compared with the biggest closing expense of all: your down payment.

Though it’s due at closing, the down payment usually isn’t considered a closing cost. That doesn’t make it any less impactful, though. Your down payment plays an important and sometimes decisive role in whether you can close on your dream house – or, let’s be real, the best house you can afford on your budget.

This is because your down payment is a key part of the offer you present to the seller. The general rule of thumb is simple: the larger the down payment, the stronger the offer. More precisely: the greater the down payment’s share of the total purchase price, the more likely the seller is to accept.

Historically, the ideal down payment has been at least 20% of the purchase price. On a $200,000 house, that’s $40,000. In recent years, smaller down payments have come into vogue, thanks to looser underwriting requirements and growing acceptance among sellers.

Nevertheless, scraping together a down payment is a tall order, especially for first-time homebuyers in expensive coastal markets. According to CoreLogic. the average home price in California’s Bay Area topped $700,000 in 2016 – and that figure includes relatively inexpensive bungalows in East Bay suburbs, as well as ultra-pricey row houses in San Francisco proper.

That doesn’t mean it’s impossible to save for a down payment. It just requires time and fiscal discipline. If you can follow some or all of the following tips and strategies, I’m confident you’ll realize your dream of homeownership faster than you thought possible – even if it means scrimping in the short term.