Buying a Home? How to Save for a Down Payment

Buying a Home?

How to Save for a Down Payment

Purchasing a home is typically the largest purchase a person will make in their lifetime. When purchasing real estate it is important to understand the complexities of how to prepare for your purchase, what you can afford and what everything will cost. A down payment is a one-time cash payment you will provide at your closing. The payment will have a long-term effect on your finances since it will determine your mortgage payments and your initial home equity.

Know Your Budget:

Before you start looking at homes and saving for a down payment, your first step is deciding what you can afford and what you want from a home. List your basic requirements such as school district, size, location and other features. When it comes to affordability plan to sit down with a mortgage lender who will let you know how much mortgage you can qualify for. The most common mortgage terms are 15 and 30 years.  

Monthly payments will mostly consist of your principal, interest, homeowners insurance and taxes. What you can afford will be based on your income and savings. Also, you will need to expect to make a 20 percent down payment on a house.  It's not required but it's just the minimum down payment to get the best-priced deals. You can put down less, but you will not avoid Private Mortgage Insurance (PMI) and you will more than likely be paying a higher rate.

Create Your Budget:

Create a budget goal that is doable! That might mean you may have to earn additional money and cut back on your expenses. You can earn the additional income by working a second job, starting a side hustle, or selling your stuff that you don't need.  Some expenses you can cut back on are fast food, downgrading to a cheaper place, taking public transportation and much more. Making room in your budget can help you save the money you'll need for your down payment. 

Automated Savings Plan:

It's  time to save once you know how much you can afford on your home purchase. The best option is to save a portion of your paycheck automatically. A certain percentage or dollar amount of your regular pay should go directly into a savings account to accumulate the funds for your down payment. Save as much as you can so you can quickly build up your balance and make your purchase as you're ready.

Use Windfalls To Your Advantage:

A windfall is an unexpected gain in income. Having periodic windfalls can make the process of saving money for a down payment easier. Those windfalls can include large commission checks, income- tax refunds, gifts received, the sale of personal assets or bonuses.  While it can be tempting to splurge with those windfalls, remember the money is increasing your savings without you dipping into your regular income. By depositing these funds into your down payment you can fast-forward the process of saving money. 

Summary:

In conclusion, buying a home can be a long process that requires your savings and self-discipline. But be realistic about what you can afford and stay dedicated. It will be all worth it at the end!