Saving for a down payment

Saving for a down payment on a house will seem like an overwhelming task at the beginning. But with some planning and discipline, it is achievable. Really, it is! As someone looking to buy their first home, I have read a ton of articles on money-saving tips and the mortgage process. Here is the best advice on how to save money for a down payment on a house:

• What houses can you afford:  Using your income and likely debts, you should speak with a lender about what kind of mortgage you can afford and get a pre-approval letter. There are plenty of online calculators that will show you what a monthly payment will be depending on the home price, interest rate, and downpayment will be. Once you know what you can afford. You should set a goal for the ideal down payment. While the traditional mark is 20% on a conventional loan, you can still get a conventional loan with at least 5-7% down.

• Set a savings goal:  Determine how much money you need to save for a down payment and closing costs and then set a realistic savings goal. You can use online calculators to estimate your monthly savings needed to reach your goal.

• Create a budget:  Create a budget that includes your income, expenses, and savings goals. This will help you identify areas where you can cut back on spending and save more money.

• Automate your savings:  Set up automatic transfers from your checking account to your savings account. This will make saving for your down payment easier and less tempting to spend.

• Cut back on expenses:  Look for ways to reduce your expenses. This might mean cutting back on eating out or cancelling the subscription services like Netflix or that gym I never go to can really add up. 

• Monitor your budget:  Unless you win a lottery or inherit some money, saving for a home downpayment can take months or years to do. You need to review your finances at least once a month to make sure you are following your budget plan and adjusting it when necessary. 

• Consider a high-yield savings account:  A high-yield savings account offers higher interest rates than traditional savings accounts, which can help your savings grow faster.
• Increase your income: Consider taking on a side job or finding ways to earn more money to boost your savings. It may also be time to consider selling things you keep in storage. You would be surprised at what people sell on the Facebook Marketplace.

Now that you have your budgeting plan and you down payment goal, you should still consider other options to a conventional loan. Closing costs can vary depending on if you have a conventional loan, an FHA loan, or a USDA loan. While the down payment and credit score eligibility for the FHA and USDA loan are less than a conventional loan they both come with higher closing costs as well as require mortgage insurance for the life of the loan. 

Is an FHA loan right for you?  Your closing costs, interest rates, and monthly payments may be higher with an FHA loan at 3% down than a conventional loan at 7-10% down. Working closely with a good lender is important to understanding what you can afford and what you need to save to buy a new home. If you have any questions about saving as a first-time home buyer, or any other real estate-related questions, call, text, email, or live chat with us today!