The purchase of a house may be one of the largest purchases a person will ever make. With home prices on the rise, it may feel impossible or intimidating, especially for first-time buyers. There is no need for worry. You’re at the right place if you want to know how to save money for a home. Take some time to reflect on your financial situation before you begin looking for a realtor. This will help you develop a successful plan. Here are 10 ways to save money for your first home and make the biggest purchase of your life.
What are the costs of buying a house?
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
According to the National Association of REALTORS the median price of existing homes in March 2021 will be $329,100. You will most likely work with a lender to finance your purchase if you don’t have hundreds of thousands to spend. The down payment and closing costs are the two major costs that you will need to save for.
Pay Down Payment
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
The down payment is a cost that a buyer incurs when he or she finances a purchase. It is usually expressed as a percentage, and can differ depending on the type loan. A 10% down payment on a $200,000 purchase is $20,000. A homebuyer will need to pay $20,000 at the closing while the bank finances the $180,000 balance.
Closing costs
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
Closing costs include an appraisal fee, a termite inspection and escrow fees. Homebuyers will not know the exact amount until just a few days or weeks before the closing date. Closing costs are usually between 2% and 5% of your loan amount. Homebuyers who have a $180,000 loan can expect to pay between $3,600 and $9,000 for closing costs.
Moving Expenses
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
Even though moving costs aren’t as high as a deposit, buyers should still save for them. You can save money if you only have a few small items and have a small household. If you need to move heavier and larger items, it is best to hire a moving service or rent a truck. Moving.com reports that the average cost for a local move in the US is $1250, and $4,890 if you are moving long distance.
What is the Down Payment?
How to Become a Millionaire.
The down payment is typically a percentage. Depending on the program, however, the percentage may vary. One of the first steps in saving for a home is to determine which loans you are eligible for. Every year, the requirements may change. Check with a mortgage expert to find out the most recent details.
FHA Loan: The Federal House Authority (FHA), a loan insured by the federal government, is a FHA loan. The government does not provide the homebuyer with the loan. This program allows lenders instead to require a small down payment. The government will guarantee the loan if the borrower fails to pay. U.S. Bank states that the FHA requires a minimum down payment of only 3.5%. A 3.5% downpayment for a $200,000 buy is therefore $7,000.
203k Loan: A 203k is a subset FHA loan that is based on Section 203(k). of the National Housing Act. This program is based on the same rules and regulations as FHA loans, but includes the rehab costs as part of the loan. Homebuyers are able to purchase a distressed home that needs significant repairs at a low price.
VA Loan: The U.S. Department of Veteran Affairs has created a VA loan that is similar to an FHA loan. The only people who can get this loan are U.S. veterans and servicemen. A VA loan does not require a down payment or private mortgage insurance. A VA loan also allows the seller to cover 100% of closing costs. This is unlike FHA loans, which limit a seller’s contribution to only 3%. A homebuyer that qualifies for VA loans does not have to save for a downpayment.
USDA Loan: USDA Rural Development Single-Family Housing Guaranteed Loan Program is also known as a USDA Loan. This program allows homebuyers to finance their home purchases in full, without the need for a downpayment. This program is only available to low- to moderate-income buyers who own a rural, single-family house. To determine your eligibility, speak with a local mortgage professional.
Conventional Loans – A conventional mortgage is one that does not fall under a government program. The down payment can range from 5% up to 15%. A 5% deposit on a $200,000 purchase is $10,000.
Why do people want a 20% down payment?
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
Private mortgage insurance (PMI) is usually required for home borrowers who make a downpayment of less than 20 percent. This is not the home insurance. A PMI protects a lender in the event of a default by a borrower. Some homeowners will have to pay PMI in addition to their mortgage payment, insurance and property taxes.
Some homebuyers are happy to pay the PMI, as they would rather have a smaller down payment. Certain loan programs do not allow you to remove PMI. Some programs, however, will remove PMI when the remaining balance reaches 80%. Homeowners may accelerate their debt service payments by making extra payments to the principal balance. Refinancing the property is another option. This allows homeowners to take advantage of its appreciation.
What Can You Afford to Spend?
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
It’s important to know your budget before you begin looking for a house. As a general rule, the mortgage payment shouldn’t exceed 1/3 of your household’s monthly net income. A person with a net monthly income of $2,500 would aim for a mortgage of $833 per month. This rule is an easy and quick way to estimate how much you can spend. Every homebuyer should review their finances in depth. Due to home insurance, property taxes and mortgage payments can vary.
How to save for a down payment
Bank Account
You should save your money in a high yielding account such as a Money Market Account. You may not earn much interest on your account. You can avoid putting your savings in a risky investment account such as REITs or stocks by not doing so.
- Track your expenses
Financial Planning
You must first identify and track your expenses before you can begin saving for your downpayment. Track all your expenses, whether it’s for entertainment or utilities. You can view all of your transactions with online banking. You may be surprised by what you find when you review your expenses. You can calculate how much money you have left over after paying for your expenses by knowing how much you spent. - Budgeting is important.
Budgeting
It’s important to create a plan after you have tracked all of your expenses. Budgeting does not mean you have to give up the fun in your life. A budget is a great way to ensure you have enough cash each month. For example, you budget $100 a month for dining out. You will need to delay any plans for dining until the next month if you have already exceeded this amount. - Automated Savings
Best Investments
Budgeting is an excellent way to stay fiscally responsible. It can be very tempting to spend the money in your checking account as soon as it arrives. You can help combat this temptation by setting up automatic transfers into your savings account. Speak to your payroll department and ask them to transfer a certain percentage or amount to the account you desire. You can also set up an automatic bank transfer. Automating your saving is an easy way to stay on track with your budget. - Spend Less to Save Money
Maintain good credit score
Reduce your expenses if you’re short on money. Consider bringing your own lunch to work instead of purchasing lunch. Get rid of all unnecessary expenses. It’s great that you have signed up for gym memberships after the New Year. If you don’t use it, it’s better to cancel it so you can keep more money. If you can, consider living on a budget and downsizing. You are not cheap. You are not cheap. Instead, you’re more deliberate with your money. You can, for example, trade in your car to get a cheaper vehicle or switch your cell phone plan. You can also move into an affordable apartment while you build up your deposit. - Earn More Income
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
You can also save money by increasing your income. You can achieve this goal by asking your employer for a raise. Be sure to support your request for a promotion with relevant data. Consider a side gig to generate a second source of income if you are unable to obtain a significant raise at your primary job.
You can use your career to make extra money. If you have a spare bedroom, you can house hack and rent it out to earn extra money. Consult your landlord before looking for a new roommate.
- Postpone major activities
Travelling is a great way to meet new people.
Some may call me a sourpuss, but you can also save money by delaying important activities and events such as family vacations or concerts. Travel alone can help you save hundreds or even thousands of dollars. You can always re-live the experience. Once you own your home, you will be able to hang these memories. - How to Get Out of Debt
Prepaid Cards Best Buy
Another excellent way to assist you in buying a home is by eliminating debt. It can not only reduce your monthly expenses, but also improve your standing with your lender. Experian says that payment history and credit usage ratio are two of four important factors mortgage lenders take into consideration. Lenders are looking for borrowers who have a history of timely payments.
Lenders also use the credit usage ratio to determine a borrower’s balance in relation to their credit limit. The lower the credit utilization ratio, the better a borrower is for a lender. Paying off your credit card and student loan debt is a good idea. Lenders will also look at the debt-to income ratio (DTI) of a borrower. This ratio compares the amount a person has to pay compared to their monthly income. Your DTI, credit usage ratio and other factors can help you qualify for a loan.
- You can save your windfall income
How to Save for a Home: 10 Ways to Make Your Largest Purchase Ever!
You may receive unexpected income in the form of bonuses, gift funds, tax refunds and stimulus checks. Save that money instead of spending it on products. - Sell Your Things
Earn Money
Selling items that you no longer need is another way to increase your savings. If you don’t plan to have children in the future, you could sell your Spectra S2, Aldi diapers or Moses baskets to a mother who is in need. You can make money and reduce your possessions. This can help you save on moving costs. You can sell your items by holding a garage or yard sale, or by listing them on Facebook or Craigslist. You can sell your video game console or TV, but you can also sell your car. - Pause or reduce retirement contribution
30 Day
Regular contributions to your retirement fund are essential, especially if you’re still young and have plenty of time. If you want to temporarily reduce or pause your contribution to your 401k, or IRA, then you may do so if you are saving for a downpayment. Remember that not contributing to retirement accounts will result in you losing the tax advantages. It’s important to weigh both the pros and cons before pausing or reducing contributions. You might find better ways to save money, or you may need to extend the time frame to reach your goal.
Final Words
A house is an excellent way to build wealth for future generations. Start contacting mortgage professionals as soon as possible. An experienced mortgage lender can guide you through the mortgage process and identify the mortgage loan programs which are best for you. You can also get advice on what credit score you should aim for to obtain a lower interest rate. As you save for your downpayment, practice setting up a budget for monthly payments. Once you are ready to buy a house, you will already have a good habit.
This article was originally published on Wealth of Geeks. It has been republished by permission.
