How You Can Save for a Home Down Payment?
Buying a home is one of the biggest investments you can make in your whole life. When buying your first home, the first step is to save up for the down payment.
Following are some proven tips that can make saving enough money to make the down payment faster than you may have initially thought.
1. Set a budget for your home down payment. – Before even deciding on the type of home you want, you need to determine first what you can afford. You can then set your sights on completing the down payment. Financial experts recommend allotting about 25 to 30% of your earnings for your home mortgage. Most lenders would also likely reject a mortgage application costing more than 35% of your income.
You should determine how much you can afford to spend for yourmonthly mortgage amortization. An online mortgage calculator can help give you an idea on what your target price would be, based on how much you can afford to spend on a monthly basis. It is also very beneficial to speak with a mortgage professional, they do this everyday all day, you only do it once is a while.
2. Set your savings target. – When figuring out how much to save for your home, you need to consider two main costs: 1) the upfront costs, and 2) the ongoing costs. Your first savings target must be able to cover all upfront costs. These include the down payment, home appraisal, home inspection, and closing costs. Following is a guide on how you can estimate the cost of each item:
➢ Down payment – As much as 20% of the total budget for the house, though most fist-time homebuyers set aside less than 10%
➢ Basic home inspection cost - $300 to $500
➢ Home appraisal cost - $300 to $400
➢ Closing costs – anywhere between 2 and 5% of the total budget for the house.
3. Set your timeline. – One great thing about having a set timeline is you have a definite target in owning your first home. There is perhaps no bigger motivation to save than that. Looking at your current earnings and expenses, you can compute how much you can set aside each month. Now, divide the amount with your savings target for the upfront costs to arrive at the number of months you need to save up before you can own your first home.
4. Prepare a budget and monitor your spending. – If you don’t have a budget set up, and you don’t keep track of your monthly spending, then there’s no better time to start than now! It won’t happen overnight, but when you know where your money is spent every month, you’ll be surprised to find out that there are lots of spending areas that you can cut back on, and save money that will help you build up your fund intended for the down payment.
By identifying the expenses you can save on, you can boost your savings and help you achieve your savings goal faster. These include getting a roommate, and getting rid or getting a lower cable package subscription.
5. Share your goal. – Most people keep mum about their finances, and you can’t blame them. However, there is a couple of sound reasons you should share your home savings goal with your family and friends:
➢ Accountability – This is a good motivator. When you are aware that your parents or friends can ask you anytime about the current status of your savings, chances are, you will try to stick with it.
➢ Getting help – If necessary, you may solicit some help from your family and friends for your home savings. You may even request for small contributions for special occasions like holidays and birthdays. Cash registry sites like MyRegistry.com or Zola can help.
After saving enough money for your down payment, you can begin your search for your dream home. The key is determining the kind of house you can afford, and be on your way to finding the perfect home for you.
Looking for some help and direction? Feel free to reach out anytime firstname.lastname@example.org