Saving up for a down payment on your first house is like participating in a race against time. A lot of people are worried if they will ever manage to save up enough money with inflation and rising house prices going against them.
But the fact is, saving for a down payment is the best way to buy a house. The more money you can offer for a down payment, the more money you can save in the long run. So it makes sense to do everything you can to set aside enough money for a down payment.
In this article, we are going to learn about saving methods you can do to finally get that dream house. These saving methods may be different than some that you may already have known. The reason is that in order to save money for a down payment, you need money that you can have access to soon and in a large amount. This may very well be the biggest single purchase you will ever make.
Figure out the amount you need to pay
Saving your money with a goal in mind can help make the process easier and more tangible. This is why you need to know how much you’ll need to save. Have a talk with a mortgage lender, a person who will inform you how much of a mortgage you can qualify for.
A general rule of thumb is that your housing expense should not be more than 28% of your monthly income. This amount will include mortgage principal and interest, private mortgage insurance of PMI, HOA dues, homeowners’ insurance, and real estate taxes.
In today’s market, everyone is expected to be able to pay about a 20% down payment on a house. This amount is the minimum down payment you need to pay to get the best deal on a house. Of course, if you can’t afford it, you can lower the amount. So, it isn’t a requirement, but needed to get the best deal.
Decide on a timeframe
Everyone could save up enough money to make a 20% down payment on a house, but how long will it take them to get there? Deciding on a timeframe will help you figure out how much money you should save each month or year.
So if you’re planning to purchase a house in 4-5 years, then prepare to save enough money by then. Obviously, the shorter your timeframe is, the more money you need to set aside each month or year. How much time you need is entirely up to you, but it’s also a good idea to consult a real estate agent to figure out when is the best time to purchase a house.
Figure out the best way to save money
People have their own ways to save up money, some of them are relying on long-term methods while others prefer short-term ones. Considering that your goal is to buy a house within a specific timeframe, you should avoid investing your money in risk-type investment methods.
Instead, you want to save your money in a safe way such as with a boring old savings account or a certificate of deposit. Keep in mind that some investments require a very long timeframe to give returns, so although they’re safe, they may not be viable for you.
Expand your budget
By expanding your budget, I mean increasing the amount of money you save and decreasing your expenses. Depending on how much money you need for a down payment and the timeframe you set, your budget may need more room so that your savings goal is doable.
This also means that you have to make some sacrifices. Instead of buying a new phone now, you need to wait until you’ve made the down payment. Saving up more money also means that you can reach your goal faster.
Saving up for a down payment is the best thing to do for all home buyers. You need to make at least a 20% down payment of the total value of the house, to get the best deal. I know it can be difficult, but think of the house you’ll finally own and the amount of money you’ll save in the long run.