Saving for a Home? Use These 3 Tips
There are several factors to take into account when you begin saving money to purchase your next house. To some, saving for a home might seem impossible, but with a few money-saving tips, it just might feel like more of a reality than ever before.
Plan Your Down Payment Approach when Saving for a Home
When it comes to the down payment on a home, many people still believe the myth that all banks are going to require a straight and hard-lined 20% down payment before they will even consider you for a loan. The truth in today’s mortgage market is much different though. There are several different mortgage loan options available in the market today, and what some borrowers/buyers don’t realize is that they very well may qualify for a loan that requires a lesser down payment. Some conventional loan programs can require as little as 3% down.
There are FHA loan programs geared toward helping “first” time buyers that only require 3.5%. There are VA loan programs with 0% down payments, as well as USDA loan programs requiring no money down. One thing to be aware of with a lesser down payment, many times you will be required to pay an extra monthly cost to cover mortgage insurance.
Factor In Closing Costs and the Cost of Maintaining a Home
There are more upfront costs to making a home purchase than just the down payment. These extra transactional fees are often all lumped under the umbrella label of closing costs. This is usually anywhere from 2% to 6% of the list price of the home. Closing costs can include the price of an inspection, appraisal, title insurance, and paying a notary to go over the final contract and be present at the signing, etc. These costs of course can be negotiated out as to how much which party pays with the help of an expert Realtor®.
Make a Best Personal Plan for Saving
Once you have a good idea of what upfront costs will probably look like in saving for a home purchase, it is time to make a plan to be able to save that amount of money. You will want to go over your current budget with a fine-tooth comb to determine just how much you can set aside. Some saving strategies can include:
Cutting extra spending from your monthly budget: Review everyday spending habits, and cut back on certain areas like eating out, purchasing clothes, entertainment, etc.
Find areas that you would be able and willing to sacrifice a little on in order to be able to purchase your next home. Tucking away cash from gifts or bonuses.
Checks sent for birthdays and holidays, or any overtime or bonus pay could add up quite quickly if you automatically send them to savings.
Borrowing from Other Investments: Taking a bit of money from your 401(k) account to help make the down payment could be a good way to help find a larger sum of money to pay a down payment. Some 401(k) accounts allow you to borrow money for this purpose.
Just make sure you are well versed in the terms of withdrawals before making one. It can take several weeks for this money to be processed. Sell off some stocks: If you have investments in the stock market, converting your stock money to cash to be able to make a down payment may be a great idea. Make sure to check with a financial advisor on the best idea.
Consider a temporary side-hustle: Taking on a second part-time job can help you to save money rather quickly for that down payment. You could even choose something that is super flexible and lets you decide your hours/when you are available, like becoming a DoorDash driver.
There are many ways you can tuck away a little bit of money here and there to get you to your down payment and closing cost goals, to make saving for a home a reality. Some might take a little more time or commitment than others, but the great part is you have options and get to choose your own route to saving for the cost of a home purchase. For more information on purchasing a home in West Ocean City or surrounding areas please contact us any time.
Start at the beginning - Steps to Buying a House