Buying a new home can be exciting and overwhelming all at the same time. There are a number of steps you have to take to purchase a home, but saving for a down payment is one of the most important.
A down payment is typically combined with a mortgage to purchase real estate. The down payment amount as well as your credit score, credit history, total debt and annual income will influence how much mortgage you can qualify for.
Most mortgage lenders prefer a minimum cash down payment of 20 percent of the full home purchase price, but there are programs available for buyers who may qualify for a loan with a lower down payment. If this is the case, a financial institution will require private mortgage insurance which protects the lender in case the borrower defaults on mortgage payments.
Consider that if you’re purchasing a $250,000 home, you will need up to $50,000 for a 20 percent cash down payment. That’s a lot of money and it can take a long time to save. Even if getting to the 20 percent mark is not feasible, the more money you put down, the less you will need to borrow and the lower your monthly mortgage payment will be. Use our mortgage calculator to help calculate how much home you can afford and how much you may be able to borrow.
Once you know what you can afford, use these 10 tips to start saving up a down payment to purchase your home!
1. Create a budget and set goals. To get started, you need a clear picture of how much money you have coming in and how much money you have going out. This process will help you review your spending habits and find areas in your budget that may need to be addressed in order to save the down payment amount you want to reach.
2. Curb your spending. If your expenses need to be trimmed to make more room for saving money, you will need to cut spending. Make coffee and lunch at home instead of buying it at the deli. Use coupons and always comparison-shop before making any big purchases. Host a bring-your-own-dinner and drink party and enjoy a movie at home with friends. These are just a few ideas to reduce expenses, but you can be creative to find other ways to save that fit your lifestyle!
3. Reduce your monthly debt and increase your savings. Try to cut back on some recurring monthly expenses such as cable or a gym membership. For example, watch TV shows online using one of the free or low-cost streaming services and exercise at home or outdoors. Also, shop around for different providers for other recurring expenses such as car or rental insurance. You may be able to get better deals that save you some money for a year or two. Then put what you are saving toward your down payment goal.
4. Consider consolidating your debt. If you have a lot of debt, consider consolidating debt to reduce your monthly payments. You can consolidate just about any debt from credit cards to car loans.
5. Use cash or a debit card instead of using credit. Set a weekly budget for cash expenses and carry that amount of cash in your wallet or use your debit card. When spending cash, consumers often spend less. Reducing or eliminating the use of your credit cards will help you pay down any debt you may have and add more money to your savings.
6. Open a separate savings account. Opening a savings account specifically for your down payment to help build additional savings. You can set up automatic transfers from your checking account or another savings account to contribute to this savings account on a regular or bi-weekly basis.
7. Liquidate your assets. Sell that old car, boat, motorcycle or other collectable you no longer use, want or need and deposit the money into your savings account.
8. Earn some cash on the side. Apply for a part-time job that fits your schedule or make some extra money online via one of the freelancing sites.
9. Ask for a raise. Don’t hesitate to ask for raise if you’re due one! Keep good records to support the reason you are asking for an increase in pay and be thoughtful about your approach. Do research on what your position earns in the marketplace and know how much of a raise you can expect.
10. Check your credit early in the process and work on improving your credit score ahead of time. A good credit score can impact your mortgage interest rate. Qualifying for a lower rate may reduce the total costs of the mortgage and can help paint a good financial picture for your lender in the event you don’t have a 20 percent down payment. Check your credit score anytime using Credit Sense and learn how to improve or maintain your score.
Determine your down payment goal and get started today! For more helpful ideas before you begin house hunting, download our guide to home buyingor request a consultation. Also if you are a first-time homebuyer, you may be eligible for additional benefits through our first-time homebuyer programs.
To learn more about mortgages and home lending, check out our other blogs. Good luck and enjoy the journey to find your dream home!
Found a house you are ready to purchase? Apply now for a mortgage!