The excitement is hard to contain when you think about shopping for a house. Well, at least until you realize you need a down payment. It is possible to buy a home with less than 20 percent down which makes it easier for buyers to get into the market. But, if you contribute less than 20 percent on a home purchase you’ll be required to have mortgage insurance. This additional monthly payment protects the lender in case you cannot make your mortgage payments. With mortgage insurance in mind, you can understand why it pays to save up 20 percent before buying a home. Here are 3 things you should know before you start saving.
The first thing you need to do before saving for a down payment is call your realtor. That may seem like a strange first step if you are just starting to save. However, your agent can help guide you on the specifics of a home purchase. They can provide the initial insight on the costs of what you are looking to buy or what equity you might have in an existing home that can be used as a down payment. All of these factors determine the type of loan you need to secure. They also have mortgage broker connections to help you understand the lending process. Once you have a clear idea of how much money you will need, you can move on to the next step.
Step 2 is to budget, budget, budget. Start with an in-depth look into your current income and spending categories and then set a savings goal. You can work toward that goal each month by spending less money than you bring in. You may need to consider making some big changes, such as opting for a less expensive apartment or taking on extra work. Make sure to keep your credit and debts firmly under control and stay focused on meeting your savings goals.
Step 3 is finding ways to set aside extra funds when you have a chance. If you get a tax refund make sure to set it aside and not spend it. Bonuses might also be extra money that you pay taxes on and then apply toward your savings goal. The extra money might just come from a garage sale of things you never use anymore. One of the best ways to find extra money is as simple as saying no to things you don’t need. Instead of buying that new car or going on that trip this year, pay yourself instead.
Once you do buy that first house, it is important to keep setting money aside each month. These funds can help with unforeseen costs, repairs and upgrades. When it comes time to sell and buy your next home, continually saving will ensure your are ahead of the game with some money set aside to use on your next down payment.
If you are ready to take the first step and want to speak with a realtor, COListings agents are ready to help you.