Buying a home is not one of those routine purchases you can make with one of your credit cards. Saving money to buy a house demands careful planning and excellent execution. You need to be on top of everything, from the type of mortgage you want to explore (if you want to take that route), the preliminary cost, closing costs, and even post-purchase details.
No doubt, people get fazed when they consider all they need to do. However, you need not be daunted. As long as you begin to save on time and develop the discipline to pull through to the end, you will be fine. There is a lot to learn if you want to know exactly how to save money for a house. Let’s dive in so you can see each and every step and know exactly what it will take!
Crucial Steps To Save Money For A House
Home costs keep going up by the day. Hence, it might just be a great idea to start saving for a house as soon as you are able to. This could be as early as when you finish college or when you get your first paycheck. Housing costs are so exorbitant that you may be unable to pay the entire thing at once. Hence, you could be looking at getting at mortgages, although the interest rates charged should be of importance to you, too.
Putting together the savings you would need might seem quite challenging. However, it is definitely doable. The hundreds of dollars you would need to either make a one-off payment or a down payment might not appear suddenly. You would need to be intentional about your spending and savings habits to get you to your goal. There are certain best practices you would want to develop. Below, we list the steps you can take to start saving for your home.
Create A Budget
Home buyers often make the mistake of not creating a budget before setting off to save for their home. They set their eyes on any property they feel like and just go on. This is wrong. Making a budget is one of the best steps to take when saving for a property. Know the estimate of the house you want to purchase. The house you want to buy will inform how much you need and help you save. Ideally, you should make this decision, taking into consideration your income every month and your expenses.
Furthermore, you can then decide what you will set aside (ideally every month). If you took on a mortgage, you can then fully prepare for the monthly payments.
Get A Side Hustle
A side hustle, as the name suggests, is some way to make extra money, in addition to your regular job. Bearing in mind your budget, you could look for a way to generate more money. This could mean taking on a part-time job such as driving an Uber, delivering with Roadie, or becoming an Instacart Shopper. Alternatively, if you have a skill, this could be the best time to freelance. If you have any products you want to sell you can always use a site like Tradesy or Mercari. Go ahead, as long as you are making extra cash and heading towards the savings goal of buying a house.
Invest Your Windfall
Bonuses, interests, and gifts are all parts of your personal finance. Thus, they should all contribute towards your home buying savings. It might be best to put the funds in a savings account that will yield interest periodically.
Cut Down On Luxuries
Cutting down on luxuries is one of the ways to save funds. When saving for your house, you should keep in mind that it wouldn’t be ideal to make any sudden or huge purchases. You would have to develop the discipline to stick to your budget. Hence, you may want to keep an eye on your credit card and the way you make purchases using it.
Furthermore, it might be helpful if you didn’t hand off your credit card to your child or spouse to splurge. Reducing your expenses is one of the best pieces of advice you could get because it also helps improve your credit score. Thus, it is a win-win in each case.
Reduce Or Eliminate Routine Expenses
In looking to save your home’s purchase price in full, you need to trim not just luxuries but also routine expenses. Look through your monthly expenses and decide the ones that can go. You’d be surprised at how many hair products you do not need or how much of your money go into eating out. For every one of these expenses you cut, you save some money for your dream house.
What To Know About Making A Down Payment On A House
You may eventually be unable to pay for your house in full all at once. In that scenario, you may require a loan. Most loan facilities require that you make a down payment before accessing the funds. However, it might be great to understand what a down payment is, what a down payment fund is and how everything ties in together when purchasing your home.
A down payment is the money you pay upfront when looking to purchase an asset such as a home. This is the money you have to pay for yourself without running into debt. A down payment is the best possible means of showing that you have the means to afford your home.
Down payments are often part of the requirement when securing a loan for your house. This is not necessary in all cases. However, it might be wise to make a down payment on your property even if you don’t have to. More so, the more money you pay from your down payment savings, the better your chances are in the future. This is especially if you intend to set up a mortgage.
It is sometimes confusing to determine how much exactly you should pay in a down payment. There is no hard and fast rule to it. To determine how much funds you can set aside as a down payment, first take a look at your savings and investment and calculate the total funds you have available. Next, decide the amount you want to leave behind as savings.
Furthermore, budget some money to serve as moving costs and any other unforeseen renovations/expenses you may have to do on the property. Next, set aside emergency funds both for your immediate needs and unforeseen circumstances. Then you need to determine your closing costs. Closing cost refers to the costs associated with closing the deal. They range from 4 to 5 percent of the total cost. Subtract the closing cost from the total savings you have. This would then give you your down payment savings. Even though the downpayment can take all of this, it eventually is up to you to decide what percentage exactly you want to set up.
Generally, the value of the down payment you make affects the type of loans you can access. It also will determine whether you will get access to the loans easily. In general, you should look towards making a down payment of about 3 to 5 percent of the home you are looking to purchase. You get to pay off the loans from your savings over the years.
There are unique benefits to making a huge down payment. The first is that you will get a better mortgage deal with a higher down payment. You will get access to a lower interest rate. This is because the huge down payment would serve as an assurance to the potential lender. Similarly, this could help with your mortgage insurance. Several burdens such as Private Mortgage Insurance (PMI) can be avoided when you make a huge down payment. Finally, it could impact your future borrowing power. This is because it boosts your debt-to-income ratio. It also affects your credit score and makes sure you do not run into credit card debt.
On the flip side, there are benefits you gain from making a small down payment. You get the advantage of purchasing the property sooner. Instead of waiting till you have save up enough money for a huge down payment, you could commit with what you currently have. Furthermore, it helps with increasing your emergency reserves. A lot could come up, such as a mortgage payment, renovations, etc. You want to be prepared when these challenges come up.
Other Costs To Consider When Saving For A House
The money you would need to purchase the property is undoubtedly the most important consideration to have. However, there may be some other costs. For instance, you may need to pay for the property’s renovation or remodeling. You may also need to buy products you would need for finishing the house to perfection.
Furthermore, there could be property taxes you would have to pay maybe at the point where you buy a home or afterward. Thus, it is necessary that you get a cohesive view of the total costs while starting out to save.
Benefits Of Saving For A House Early
Sometimes you could be torn between paying off your mortgage and other pressing needs such as student loans, debts on your credit cards, etc. However, is there a need to save and pay for your house on time? Below are a few reasons to consider.
It Is A Smart Move
Having your own property is a good investment to make. The earlier you start then, the better for you.
Allows You To Build Wealth
Starting on time to save for your property is great because it gives you room to build wealth. Owning a property is like a debt you will surely pay. Imagine all you could achieve if you didn’t have to pay any debt in the future. You could even start on your retirement savings on time, too.
It Makes Funds Available For Future Expenses
Granted, no one knows exactly when emergencies will spring up. This makes it imperative to always prepare and be on the lookout for any unforeseen circumstances. Getting your house payment issues out of the way helps prepare you for emergencies. This is because then you can channel your resources towards these problems when they show up. For instance, imagine that a family member gets involved in an accident, whether domestic or at work. You will be in much more trouble if the money in your checking account or savings accounts is insufficient to handle the emergency. This will most likely be the situation if you haven’t fully paid the purchase price for your home.
FAQs: How To Save Money For A House
Q: How much money should you save to buy a house?
A: At first, you need just enough to make the down payment. Afterward, you can pay off the rest. You should save just as much as you need.
Q: Can I buy a house with $10, 000 down?
A: Yes, it is possible. However, it depends on the cost of the home. Ideally, for a $200 000 property, you could pay $10, 000 to qualify for an FHA loan.