Coming up with the cash to make a 20 percent down payment (typically between 0 and 20 percent of the purchase price. on a home is becoming increasingly impractical. Lenders usually like to see a 20% down payment before they'll give you a loan. But it's not a requirement. There are also a bunch of low down payment loans available.
Note that anything less than 20% down means you'll pay more every month - not only will you be borrowing more money, but you'll also likely be charged private mortgage insurance (PMI) fees on top of your mortgage payments. Smaller down payments also make it tougher to compete in a hot real estate market filled with all-cash buyers who often win out in bidding wars.
As you save money for your down payment, avoid the temptation to invest in the volatile stock market with money you hope to use in the next year or two.
Get your documentation in order
If you’re close to putting an offer on a home, begin to collect documents that you’ll need to verify your financials on the mortgage application: payslips, employment letter or tier-I/II, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.
Mortgage lenders charge fees that aren’t necessarily reflected in the interest rate. There can be fees for appraising the home, checking your credit, and preparing documentation.
Private mortgage insurance (PMI)
If you put less than 20 percent down, your lender will likely charge you a monthly premium for what’s called private mortgage insurance, or PMI. Private mortgage insurance protects the bank (or non-bank lender) in the event you default on your loan and the value of your home declines significantly.
Where to save your Down Payment or Closing Costs
Almost all the banks in Ghana offer peanuts on your savings, albeit very better than what most developed economies even offer. If you do not come from a very wealthy family to buy a home with 100% cash, you would obviously need a payment plan of some sort, irrespective of your home finance option.
Below are valid options....
1. MTN Yello Save
A collaboration between MTN Ghana and Fidelity Bank Ghana that allows customers to send money directly from their MTN mobile wallets into a Fidelity account for savings. The current annual interest rate they offer on your savings is 12%.
To get started, you first need to be a subscriber on the mtn network, and then registered for mobile money. You can then go ahead and dial *170# on your mobile phone and choose option 6, and proceed. You need a minimum of ghs5 in your mtn mobile money wallet to set it up and that's it!
Note that, you have access to your savings 24/7 and can withdraw and deposit any amount of money you want at anytime and from anywhere - No paper forms to fill for anything! To qualify for the full 12% annual interest they pay on your money, you have to limit your monthly withdrawals to three(3) or less - Any withdrawals beyond 3 still gets you an annual interest rate of 3%, still higher than what most banks offer on your savings.
Also note that, the mtn yellow save account in partnership with fidelity bank is different from the interest paid by mtn on your primary mtn mobile money account - without having to do anything.
2. Government of Ghana Treasury Bills
A 'risk-free' investment vehicle to earn you 16% or more per annum on your savings/investments.
If your mtn number is mobile money registered, you can even do this on your phone by dialing *770# and choose option 2, and proceed - This service is provided by Ecobank Ghana Ltd under the name 'TB4All' .
There may be other banks that allows you to invest in treasury bills from the comfort of your home.
3. Other Bank Deposit Programmes
With an imminent Bank of Ghana minimum bank capital upward revision, most banks in desperate mood in rolling out various high interest savings products. You can play them to your advantage, by ensuring the minimum product you access offers a minimum of 12% annual interest rate.
4. Forex Brokerage Account
Yes. FX can be risky and volatile but you can set out on a near-risk-free strategy. We explain here.
5. A DCANS Option (Not yet active)
Coming soon, after BoG regulatory processes.
** Savings Warning **
- Do not be deceived into locking your savings with some shady microfinance company or savings and loans company or rural bank even as they may offer you several percentages more than the safer ones we have outlined above.
- Stay away from useless gambling instruments such as Fidelity Bank Ghana's '10x Richer Promo'
What next after saving for a home?
You can start the home buying process as outlined here.
Signs you aren't ready to buy a home
• You don't have enough money saved
Having a down payment of 10-20 percent of your potential home's purchase price in the bank is an impressive achievement, and you should be proud of yourself. But having saved that much doesn't necessarily mean you're set.
Affording a home means you have much more cash on hand than what you'll need up front. In fact, a down payment is just one of six necessary factors you need to budget for. The other five are closing costs, moving expenses, repairs and maintenance, the first few months' mortgage payments and your emergency fund. Closing costs can run you 2-5% of the total cost of the home, for example, while the cost of repairs and maintenance can represent 10-20% of the price of the home each year.
They represent a sense of how much you'll need saved up to be able to really afford a place of your own month after month. If you can't afford to handle all of these one-time and recurring expenses, you can't yet afford a home.