Saving for a House in Five Easy Steps
There are some attractive mortgage loans that don't require as much of a down payment as in the past, but you will still need to have some cash on hand to buy a home. Even with a low down payment loan, you may need 5%-10% down. Most experts, however, recommend that homebuyers put 20% down to avoid private mortgage insurance and other fees.
No matter which mortgage product you settle on, gathering funds for a down payment can be a challenge. Even so, this is certainly something that can be achieved with some careful planning. Here are just five simple steps that can help you bulk up your savings so that you'll be ready to make that home purchase.
1. Determine your budget. It's easier to reach for a goal if you define it first. Make a list of your "needs" and "wants" for a new home and then do some thorough research on your market. Find out how much a typical home costs that meets your needs and figure out your budget for a down payment.
2. Review your current savings. You may be tempted to tap into your existing retirement account or emergency fund to finance your home ownership dream, but this could be a mistake. It's important that you keep those items designated for their intended use. Instead, think about opening a new savings account that you will use solely for your mortgage down payment.
3. Cut back on expenses. Home ownership is a major accomplishment that could involve some sacrifices to achieve. This means that you should carefully examine your existing expenses and see where you can cut back for the sake of your dream. Maybe you don't need 500 cable channels for now and can do without the gourmet lunches for a while. If you want to go extreme, you could move into a smaller apartment and even think about taking in a roommate for a short period.
4. Boost your income. Another way to save for a house is to find new ways to make money - legally, of course. Get a second job that you can work weekends or in the evenings. Now that we have a growing gig economy, you can look into driving for a ride sharing service or even research ways to make some extra cash online.
5. Keep the change. If you are someone who shops with cash, it might be tempting to squander those loose bills and coins. These add up! Instead, set them aside and begin depositing the money into your down payment savings account. When you combine this technique with some of the others, you will reach your goal even sooner.