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11 Ways to Save for Your Down Payment
Getting ready to buy your first home?
As you may well know, purchasing a home is a major financial decision. Before you start checking real estate websites for the home of your dreams, you have to get serious first with your financial standing.
So how do you know if you are ready to start talking to a Port St Lucie FL real estate agent about becoming a homeowner? Here are a few things you might want to consider.
You are debt-free
One sure sign that you are ready to buy your own home is that debt is only a distant memory. This will ensure that you will be able to handle any unexpected expenses that may come your way as a homeowner such as home repairs here and there.
If you still have debts to settle, use the debt snowball to eliminate them one by one. Work your way up from your smallest debt to the largest one. Once you have settled everything, you should also start stockpiling money in an emergency fund.
You have steady employment
Having a solid employment history is another sign that you are ready to buy your own house. Steady employment means you have been working in the same company for at least two years. This means that you are most likely financially stable enough to have a mortgage. Moreover, it will be easier to get approved for a loan if your record shows stable employment.
You’re sure you can cover the monthly expenses
Being a homeowner is so much more than paying your monthly mortgage dues. There are other financial aspects that you have to consider such as insurance, property taxes, homeowner’s association fee (if applicable), home expenses, and utilities.
You have saved enough for a down payment
Being able to save for a down payment is proof that you are ready to purchase a home in Port St Lucie FL. In addition, your down payment on your first home will most likely be the single largest investment you’ll ever make.
The biggest up-front cost associated with buying a home is the down payment. It can be between 3% to 20% of the total price depending on which type of mortgage you will get.
A 20% down payment is a significant chunk of change. But with enough time to prepare and a little bit of creative budgeting, you’ll be able to save up for your new home sooner than you think.
Follow these helpful tips to get started!
1. Start with a definite down payment savings goal
It’s essential to know exactly how much you are going to need before you begin saving money.
So how much really should you save for a down payment?
If you’re not paying cash for your dream home, target at least to put a 10% down payment. And if you can, go for 20% so that there will be no private mortgage insurance (PMI). This is a type of mortgage insurance you might be required to pay for if you have a conventional loan. The PMI protects the lender—not you—if you stop making payments on your loan.
Once you have an idea of how much money you’ll need to put down toward your new home, set a timeline for your savings. For instance, if you need to save up $20,000 for a down payment and want to move in five years, consider setting a savings goal of $335 per month.
Use a finance app like Mint to track your spending and your savings. Apps like these may also provide you with your credit score, which is essential to receiving the mortgage you need.
Just keep in mind that the more time you spend saving up, the more money you can save up. However, try not to drag your saving time too much because you still have other financial goals to take on next.
2. Break Down Your Budget
While it’s never a bad idea to start saving for a down payment, it’s an even better idea to analyze your budget before you consider a home purchase. This will help you set realistic expectations and concrete goals.
First, make a list of all of your necessary monthly expenditures — rent, power, water, phone service, student loans, etc. Add these expenditures up and subtract them from your monthly take-home pay. Then, look at everything that is left over and consider what to cut back.
After you’ve taken a look at your spending, determine what home price range (and, consequently, a 20% down payment) you could comfortably afford based on your current monthly budget. Our handy mortgage payment calculator might help!
3. Open a Savings Account
A savings account is one of the best places to keep your money while you save for the big day.
One option is to open an account at an online bank. The advantage is that the interest rates at online banks are generally higher than with traditional banks. It will also help save you time and trouble since you don’t have to drive by the bank’s branch whenever you have to make a transaction. An online savings account is easy to open and you can get access to your savings immediately when you need the money.
Another option is to open a savings account at the same bank or credit union where you now do your checking. This is also convenient since most banks and credit unions allow you to transfer funds back and forth from accounts electronically and instantaneously.
4. Get Prequalified for a Mortgage
Setting goals based on your current spending is a great place to start. To take the next step to buying your new home, meet with a lender about prequalifying for a mortgage.
Prequalifying for a mortgage will let you know how much financing you may qualify for — and how much you’ll need to save for your down payment. When you talk with a lender, ask for the maximum amount of financing that’s available to you based on your credit score and financial history. This may open up a lot of options when you’re searching for homes.
Don’t limit yourself to one lender. You are free to look around for the best deal. Each lender will give you an estimate of how much they are willing to finance and they will provide you with a prequalification letter with the estimated loan amount and interest rate.
However, pre-qualification is just the first step. You also have to get pre-approved. Some people use the terms interchangeably, but there are important differences that every homebuyer should understand. Pre-qualification just gives you an idea of how much of a loan you’ll likely qualify for, while a pre-approval is a conditional commitment to actually grant you the mortgage.
Not sure how to find a reputable mortgage broker? Contact us and we can connect you with a trusted local lender.
5. Find Creative Ways to Earn Money
If you’re having trouble meeting your savings goals for the month, even after you’ve carefully budgeted for the essentials, think of ways to earn a little bit of cash on the side. Here are some ideas that might help:
You can sell gently used clothing and household items at a yard sale.
If you have time to spare online, there are sites that will pay you to answer online surveys and it's very easy.
Do you have old stuff like books, CDs, or DVDs? You might want to consider selling them on Amazon.
If you enjoy writing, you can work as a freelance writer and contribute to a number of different websites and blogs, and you’ll get paid for your work.
Do you have friends or neighbors with dogs? Perhaps you can offer your services to them as a dog walker.
If you enjoy being with kids, babysitting is one of the original side hustles that has been a great way to make extra money for many years.
You can also make extra money as a tutor. You’d be surprised how many people are looking for a professional tutor.
6. Cut down your expenses
Review your expenses and check which items you can reduce or eliminate. You’ll be surprised at how much money you find when you pay attention to your spending.
Here are some tips to lessen your expenses:
Take a break from the gym
Save eating out for special occasions
Trim your clothing budget
Buy generic brands at the grocery store
Cut the cable
Cut out the takeaway coffees
Cycle or walk to work
Shop in thrift stores
Throw your loose change into a jar
Share car journeys
Replace bulbs with energy-saving ones
Pay for things with cash only
Inform your friends and family that you want to cut expenses
Put the money you would have spent on these items into your down payment savings account.
7. Save your financial windfalls
One of the easiest ways to save money for your down payment is by banking your periodic windfalls. These refer to sudden, unexpected financial gains such as income tax refund, a bonus, large commission checks, the sale of personal assets, or a gift from a family member.
Anytime you get a financial windfall of any kind simply put it into your down payment savings account. Doing so can fast-forward the process of saving money to buy your future home as this can add several thousand dollars to the account in just one year.
8. Move to a modest rental
Lowering your housing cost is an easy way to save a large amount of money quickly. If you do not like the idea of living with mom and dad for a few years, you should consider a more modest rental. You can save the difference in rent every month. You can also get a roommate and cut down your rent in half.
9. Get rid of one car
If you have a car and your significant other also has a car, consider downsizing to one. Sell the other car and add the proceeds to your down payment savings. You or your partner can look at walking, taking transit, which is80% cheaper than owning a car, carpooling, or even cycling to work if the weather permits. Doing so can help you potentially save one car payment every month, plus gas, maintenance, and insurance.
10. Celebrate Your Accomplishments
Saving for a down payment is no easy task. Every time you reach a major milestone, be sure to congratulate yourself!
Obviously, don’t spend all of that money in one place, but feel free to treat yourself to something special to reward yourself for your hard work.
11. Consider Home Buying Assistance Programs
Are you still having trouble saving for a 20% down payment? It might be worth looking into home buying assistance programs. Check if you qualify with the Federal Housing Administration, the US Department of Agriculture Rural Housing Service and the Veterans Administration.
You can also ask your local housing authorities if they have programs to help.
See if your city has a First Time Homebuyers Program. From time to time some cities have programs where they provide new home buyers with part of their down payment for their first home as an interest-free loan. These programs are usually initiated to help the first time home buyers afford a home in an expensive city. These programs usually have very specific requirements. You can check with your city hall to see if your city has any sort of program like this to help first time home buyers.
Saving up tens of thousands of dollars may seem daunting, but it can be done. Think of it all as preparation for homeownership. It also comes down to how committed to homeownership you are.
Buying your own home is life-changing and rewarding. You can make the process easier by having your financial ducks in a row first. And the earlier you start saving, the better off you’ll be.
How Can We Help You Achieve Your Goals?
Call me, Melissa Conrad, at 772-240-2589. We are always available to discuss your home buying plans. Connect with us and we can provide you with the resources and advice you need.
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