Tired of the rental payments? You are not alone, so we will show you how to save money for a house. When it comes to buying a home today, there is a lot of pressure—especially in this wild market. Aside from that, carrying Fluffy up and down four flights of stairs on a daily basis could be becoming a little tiresome.
You might be ready to become a homeowner. There’s only one problem: you don’t have any money set aside for a down payment. And how are you going to save for a down payment on a house when rent is so ridiculously high?
Saving for a down payment on a property is difficult (and may take longer than you anticipate), but it is possible! If you want to become a homeowner in the near future, here are some of our finest advice on how to save for a house.
Research Home Prices
It is necessary to get a general estimate of how much your ideal home will cost before you can figure out how much you should put aside. Consider researching property prices on websites such as Zillow, Trulia, or Realtor.com to get a feel of the typical price per square foot in the region, whether you’re going to stay in the same neighborhood, relocate to another city, or even cross state lines.
For example, a 2,500-square-foot property in Austin, Texas, will be less expensive to maintain than a similar-sized home in Los Angeles.
Determine how Much should You Save
To purchase a home, you must make a down payment of 20%, correct? Although not always the case, many banks now offer traditional mortgage loans with down payments starting at just 3%.
Besides conventional loans, there are government-backed mortgages like as FHA loans, which allow down payments to begin as low as 3.5 percent, as well as VA loans and USDA loans, which may demand no down payment at all. The amount of mortgage insurance required will vary depending on the loan; but, if it allows you to move into your property sooner, you may find it is a reasonable trade-off.
Make an appointment with a mortgage loan officer to find out what types of loans you might be eligible for, how much house you can afford, and how much of a down payment you’ll need to make. That can help you figure out how much money you’ll need to put aside – and who knows, it might be a lot less than you think!
See if You Qualify for a Government Loan
The United States government offers house loans that need fewer down payments than conventional loans, as well as a lower interest rate than conventional loans. You may also be able to qualify even if your credit score is low. The following are the three different types of government-backed mortgages available:
FHA mortgage: The Federal Housing Administration needs a down payment of 3.5 percent and a credit score of 580 to qualify for a loan. You may be able to qualify with a credit score as low as 500, but you will be required to make a down payment of 10%.
VA mortgage: A Veterans Affairs mortgage is designed exclusively for those who have served in the military or have a family member who has served. It is possible that you will not require a down payment at all.
USDA mortgage: Buying a home in a rural region is made possible by the United States Department of Agriculture, which offers mortgages to those with low-to-moderate incomes. There is no requirement for a down payment.
If you qualify, government loans are excellent possibilities since they allow you to purchase a home sooner and with a lesser down payment.
Save for the Down Payment
For those considering a conventional mortgage, most financial experts recommend aiming for a 20% down payment in order to avoid paying an additional fee each month for private mortgage insurance, which is optional.
Payment of private mortgage insurance (PMI) is typically included in a monthly mortgage payment, and it can range in cost from 0.3% to 1.2% of the loan’s total principal balance. If you believe it will be impossible to save up 20% of the buying price, you are not alone. According to data from Realtor.com, the median millennial homebuyer put down an average of 7.8 percent of the buying price of their property as of April 2020.
Consider the following scenario: you want to purchase a home in the $400,000 to $500,000 range. A 10 percent down payment would necessitate a higher monthly payment for private mortgage insurance, but would only necessitate an initial investment of $40,000 to $50,000. In exchange for a 20 percent down payment, you would escape mortgage insurance payments, but you would need $80,000 to $100,000 in cash to complete the transaction.
Pay Yourself First
Before placing any money into a savings account, many people wait until the end of the month to see how much money they have left over after paying their bills. This is the worst way to go about things since you will mostly find yourself with no money left over at the end of the month.
If you want to be serious about saving, the first step is to figure out how much money you have available to put into savings. It may take some getting used to, but if you begin putting money aside, you will begin to adjust to your new situation.
To avoid the temptation of withdrawing money from your savings account, maintain your savings account in a separate bank from your checking account. You can utilize an internet bank for your savings account — mainly to offset some of the temptation. Several of them offer better interest rates than conventional banks.
Get Your Debt Under Control
Carrying a lot of debt makes it more difficult to save for a down payment on a house because a large portion of your income is dedicated to debt service. Additionally, having a high debt load can make it more difficult to qualify for a mortgage.
If you are in debt, do everything you can to get it under control. You might consider refinancing your student loans if you have high interest rates and want to minimize your monthly payments. You should pay off as much of your credit card debt as you can, and then consider transferring your balance to a low-interest card to reduce your interest rate even further.
Reduce Your Expenses
If you’re attempting to find out how and where to save money since you’re already living paycheck to paycheck, a good place to start is by cutting your costs by 10% across the board. To put it another way, if your grocery budget is $500 per month, try cutting it by $50 to make it a total budget of $450.
Even though this is a small amount of money, when you apply this strategy to all of your costs, the savings will build up. And before you know it, you’ll have saved up enough money for that down payment. Just keep in mind that saving money is a marathon, not a sprint, and that you should give yourself plenty of time to do so.
Consider a Balance Transfer Credit Card
If you have significant sums on high-interest credit cards, you might want to think about transferring them to a balance transfer credit card to reduce your interest payments. During a promotional period, these cards often offer cheaper interest rates than regular cards.
You may also be able to obtain better terms than you currently have with your credit cards, and you may be able to consolidate your credit card debt to make your monthly payments more manageable.
It’s important to understand that you may be required to pay a balance transfer charge from the beginning and that your interest rate may increase after the promotional time has expired. It is possible that the approval process for a credit card will have an impact on your credit score.
Don’t become trapped in a cycle of paying more interest. If you want, you can browse various 0% intro APR balance transfer credit card possibilities at the same time by visiting an online marketplace such as Credible.
Temporarily Pause Your Retirement Savings
This may seem odd if you’re already investing for retirement. But if you expect to buy a house soon, it’s fine to put off your retirement savings and instead utilize those funds for a down payment.
Remember: You have complete control on how intense you want to be. It’s only going to be for a little while. After a cup of coffee in your new breakfast nook, you may resume saving 15% for retirement. Just make sure it’s not a five-year break!
Retirement savings should not be used to fund a down payment. This will put you at the risk of damaging the long-term growth of your retirement savings, costing you hundreds of thousands of dollars at retirement.
Get a Side Hustle
Due to the continued expansion of the gig economy, there are opportunities to make quick dollars to contribute to your down payment money. Consider taking on a few extra hours each week to drive for a ride sharing service, grocery shop or deliver meals for an online delivery service, walk dogs or pet sit, charge self-service scooters, or any number of other tasks.
Because of technological advancements, there is an ever-increasing number of freelance opportunities like these that demand very few credentials and make it simple to earn extra money that may be used to save for a down payment on your first house.
Final Thoughts
In the end, the most effective strategy to begin saving for a house is to begin planning as soon as possible. The sooner you figure out how much money you need to save and start planning, the closer you will come towards getting your hands on the keys to your new house.
Buying a home can be a stressful and intimidating experience, to say the least. For many of us it will be our largest investment. In order to be successful, one must be wise and mindful. However, it is also something that is within your grasp and that you are capable of accomplishing! It is not as frightening as it may appear, and you are not required to go at it alone.
