Buying a home is one of the biggest purchases you will ever make. Saving up for a down payment is doable with the right strategies. Using the tips in this article, you can save for a home and get there quicker than you think.
1) Set your house budget
Before you can save you need to determine how much you can afford to pay for a house. Experts suggest you spend 25-30% of your income on mortgage. You can do some math to determine your target home price based on how much you can spend each month.
2) Determine how much you need to save
How much do you need to put down for a house? Many banks now offer conventional mortgage loans with as little as 3% down. There are also government-backed mortgages like FHA loans, which allow down payments starting at 3.5%, and VA and USDA loans which require no down payment at all. Depending on the loan and down payment amount, you may have to pay mortgage insurance, but you may decide it’s worthwhile if it gets you into a home sooner. Other costs you should consider in your savings goal are closing costs (2-5% of home cost), home appraisal ($300-$500) and home inspection ($300-$500).
Meet with a mortgage loan officer to determine what type of loan you qualify for and how much you need to put down.
3) Get debt under control
Carrying a lot of debt can make it hard to save for a home because a big chunk of your income will be going to repayments. Also, you may have difficulty qualifying for a loan if your debt to income ratio is too high. The best thing to do is pay off all or most of your debt before saving. If you have high interest credit card debt, consider transferring the balance to a low interest card. If you have student loans with high interest rates, consider refinancing them to lower your payments.
4) Make a budget and track spending
If you don’t create a budget and track your spending each month, now is the time to start. Once you start seeing where your money goes, you will be amazed at the opportunities you find to cut spending and save more toward your down payment.
5) Put your retirement saving on temporary hold
If you actively contribute to a retirement plan, like a 401(k) or IRA, considering temporarily diverting that money to your down payment savings.
Caveat: this is not advisable if you’re close to retirement.