Are you tired of renting? Ready to have a place of your own? As rent prices begin to rise again, you’re probably more than ready to stop renting and become a homeowner. If you’re like many renters, money is the main reason why you haven’t taken the homeowner route just yet. It’s no secret that the bigger the down payment, the more money you save in the long run on your home purchase. Saving for a down payment can seem like a pretty daunting task, but it’s actually not as difficult as it might seem. Here are the best ways to save for a down payment on a home:
You can’t start saving or house hunting until you know how much you actually qualify for. Sit down with a mortgage lender. While a home mortgage calculator can be helpful, it doesn’t account for every aspect of your financial circumstances. A lender will be able to factor that in and provide you with the most accurate number.
Generally speaking, your monthly housing payments including mortgage principal and interest, property taxes, private mortgage insurance (PMI), homeowners insurance, and homeowners association (HOA) dues, if any. If your pay fluctuates seasonally, aim for a lower percentage, 20%. Keep in mind that paying for a home does not end with the monthly payments. There will be additional expenses like repairs and additional utility bills.
Now that you know how much you need to save, it’s time to come up with a plan on how much you can save each month. This will also let you know how long it will take you to have the full down payment and start house shopping. The shorter your timeframe is, the higher your annual savings will need to be. For example, if you plan on purchasing a home in five years, you should be prepared to save $9,000 per year to reach that goal for a 20% down payment.
It will be tempting to save money in investments like stocks because you’ll have a chance to earn more, but there’s a risk that you could lose money, too. Instead, another option is putting your money into a certificate of deposit – it’s risk-free and has a fixed-rate growth backed by federal insurance. You could also take the ‘savings account’ route and open one specifically for your home that you won’t touch. Setting up an automatic withdrawal from your paycheck will help make sure you’re not tempted to touch it.
Buying a home is going to be one of the biggest, most important decisions you will make in your life. And as you can see, it’s not something you can easily jump into. Get with a lender and learn the best way for you to get started.