Simple Tips for Saving for a Mortgage Down Payment
- Author: William Asher
- Posted: 2024-08-12
Everyone dreams of owning a home at one point in their lives. While it may be exciting to imagine how your dream home will be, knowing where to begin can be quite a challenge. You should start by understanding the kind of house you need and its cost and then find ways of raising the down payment. Whether you are actively searching for your dream home or researching casually, here are eight tips to help you know how best to save for a mortgage down payment.
Calculate the Amount You are Willing to Save Each Month
First, determine a realistic amount you can save for the monthly down payment. You can do that by calculating your total monthly income and subtracting your expenses for the month. You can save the difference as a down payment. However, leave some room for unexpected costs such as car repairs and other unplanned expenses that may arise during the saving period. Try as much as possible and use real income and expense figures. It will be easier for you to stick to a budget if it is realistic than vice versa.
Compare Different Mortgage Options
After establishing your monthly budget, the next thing should be determining the amount you can afford. You can use online mortgage calculators to know how much mortgage you can acquire. You may also consult a mortgage loan officer from your preferred financial institution to see the amount of mortgage you can borrow.
The loan officer can guide you on obtaining loan programs for low-income and first-time homebuyers by offering down payment assistance. Although assistance programs may come in handy, you can get many benefits by paying a complete 20% down payment. You will immediately build equity for your new home and avoid purchasing mortgage insurance. Additionally, you will pay lower monthly installments.
Set a Down Payment Goal
Since you know the cost of the home you can afford, establish the amount to save each month. For example, if you qualify for a mortgage of $400,000, the down payment should be 20% of the home's total cost. If the $400,000 is 80% of the home's value, 20% of the price will be $100,000. That means you should save $100,000 as the down payment for a home that's valued at %500,000.
Set a Savings Timeframe
After creating a monthly budget and establishing the amount to save for a down payment, the next thing should be setting a saving timeline. Divide the down payment amount by the amount you'll save each month to know the months you need to keep. If the number of months seems more than you imagined, don't be afraid because you can constantly adjust the timeline if your income changes.
Open a Separate Account to Save the Down Payment
It is advisable to save your down payment in a high-yield savings account such as a certificate of deposit or money market because they earn more interest than traditional savings accounts. Request your bank to automatically make monthly contributions to the account from your salary account. That will help you to save money into the account regularly.
Find Ways of Getting More Income
One of the best ways to save money is by increasing your income. You can do that by requesting a promotion at your workplace, getting more shifts, or starting a side hustle. Use your passions and skills to begin providing services that could earn you extra income, such as online tutoring, consultancy, and selling items online, among others. You may even sell items in your home you no longer use and save the amount for the down payment.
Reduce Your Expenses
Reducing your spending can be a great way to increase your savings. Start by paying all high-interest debts and use the money for down payment savings. Also, check the things you spend money on and find where you can reduce spending. It is a great idea to stop paying for non-essential subscriptions such as gym membership, streaming services, and meal deliveries. Additionally, check if you can get discounts or lower deals on renter's, car, health, and internet and phone rates. It would also help to use cash instead of credit card to avoid buying unnecessary things.
While you may be excited about owning your dream home, knowing how to go about it may be challenging. That is because you need to plan on how to raise enough down payment, get a mortgage, and find the ideal home. If you are wondering how to save for a down mortgage payment, the above tips will help you know how best to work towards achieving your dream.
