Renting forever probably isn’t your dream, but buying your first home is really intimidating. It’s only one of the biggest purchases of your life, right? Way bigger than a car.
The main problem is saving for your first home is a huge barrier to overcome. Rising home prices make it tough for people like you to save enough money for that crucial down payment.
Also, buying a home puts you on unfamiliar terrain — one that’s full of weird new phrases, such as “closing costs.”
Luckily, now there’s an app for that. Digs is the only savings app that’s designed specifically for first-time homebuyers. Once you sign up, it’ll do two things for you:
- Every time you save money, Digs contributes matching funds up to $40 per month, based on how much you save. The more you save, the more Digs contributes.
- Digs sets up savings milestones you’ll reach along the way to homeownership — expenses such as a home appraisal, title insurance or closing costs. Digs tells you when you’ve hit each milestone and gives you educational videos and articles about the homebuying process.
“We just want you to be comfortable with the largest purchase of your life,” says Pat McLoughlin, one of Digs’ two co-founders. “You’re getting rewarded for putting money away, and you can learn a little at the same time.”
Here’s How Renters Can Afford to Buy
Homeownership is still a big part of the American Dream. But for too many, it’s out of reach.
More than three out of four renters would like to own a home, but more than half say they can’t afford it, according to the National Association of Realtors.
“There’s a huge savings crisis in the United States,” says Chad Johnson, Digs’ other co-founder. “Our research shows that something like 80% of renters want to buy in the next five years — but about 70% of those people have less than $1,000 saved for a down payment. Those are the people we’re trying to help.”
How to Get a Free $40/Month
If you save $1,350 per month, you’ll get $40 per month from Digs. The app costs $1 per month to use.
Once you link your checking account to your FDIC-insured Digs account, you can set the app to automatically save a certain amount per day, week or month. Every month, Digs will match your savings in the following tiers:
- For the first $50 you save each month, you’ll get 20% matching funds, or $10 from Digs.
- For the next $100 you save after that, you’ll get 10% matching funds, bringing you another $10 from Digs.
- For the next $200 you save after that, you’ll get 5% matching funds — another $10 from Digs.
- For the next $1,000 you save after that, you’ll get 1% matching funds — another $10 from Digs.
Add it all up: If you save $1,350 per month, you’ll get $40 per month from Digs.
“The reason we have this tier structure is to reward people who can only put a little money away,” McLoughlin said.
The app costs $1 per month to use.
You can take your money out of the app at any time — without even buying a house — but if you did that, you wouldn’t get to keep the matching funds that Digs contributes.
How Much Will You Need to Save?
The median home price in the U.S. is $193,500, according to the latest U.S. Census Bureau data. Ouch!
The good news: As a first-time homebuyer, you won’t have to come up with a huge down payment of 20% of the purchase price — even though that’s what you might assume you’ll need. Government loan programs for new buyers allow as little as 3% to 5% down.
But even that’s a big chunk of change. For example, a “low” down payment of 5% on a $193,500 house is still a whopping $9,675.
You’ll also need to pay “closing costs.” This covers things like having a property appraiser assess the value of the home and having a title company do a title search to make sure nobody else has a claim on the property. As a rule of thumb, closing costs run from 2% to 5% of your loan amount.
Start Saving for Homeownership Today
The matching funds that Digs contributes to your account are earmarked to help pay your closing costs and other fees — as long as you get a mortgage from one of the lenders that Digs partners with.
If you end up not choosing one of those lenders, you can still withdraw and use all the money you saved in the app. You would just forfeit the matched funds.
Digs adds that its roster of nationwide mortgage lenders will offer you competitive rates because they’re competing with each other for your business.
Here’s one final thought, courtesy of a survey by the real estate website Trulia:
When it comes to housing, renters’ most common regret is wishing that they had bought a home by now instead of continuing to rent.
There’s no time like the present. The sooner you start, the better.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He has bought two homes in his life.