Houses aren’t an inexpensive thing to buy, especially in most parts of the United States. If you’re thinking about purchasing one in the upcoming future, you should start saving for a down payment as soon as you can. Because most people can’t afford a house on their own, they’ll take out a mortgage loan to cover the cost. However, in order to be approved for a loan and to get a good interest rate, you’ll need to put down a decent down payment. Usually, 20% of the cost of the home is the standard, but because of how pricey homes have gotten, many people put down less. The more you can put down, the better. Here are some tips for saving for a down payment on a home.
Figure Out What You Can Ultimately Afford
Your income, debt-to-income-ratio, credit score, and current amount of savings are going to determine what your price range will be for house hunting. Most people will determine this when they pick a real estate agent. Agents will have a good amount of experience and can help you choose houses within your price range. However, if you’re still in the first stages of the process, it might be too early to hire an agent. Try using online calculators and budget sheets to determine your price point. From there, calculate three variable goals: your high-reaching goal, your moderate goal, and your low-end goal.
Create a Budget
Once you determine how much you will need to save up for a down payment, you can move on to creating a budget or modifying the one you currently have. Depending on when you plan on reaching your goal, you can then begin to trim your budget down to allocate as much money as is feasible towards your savings goal. The more time you give yourself, the more flexibility you will have with spending. When budgeting, don’t be too hard on yourself in terms of cutting out spending habits so as to avoid burnout.
Passively Put Away Money
If you have a checking and savings account, you likely have the option for the bank to put away money on a regular schedule. This is an easy way to put away savings without having to actively do so. A good way to do this would be to set up your checking account to put away a specific amount of money into your savings on every payday. Choose an amount that is affordable but is also generous. This will feel similar to money being put away for retirement or for a health savings account. Make a pact with yourself to not touch the money unless it’s for an emergency.
The Bottom Line: Stick to Your Plan
Saving up for anything can be difficult and might require sacrificing some fun activities. However, by saving up, you’re going to put yourself in a better situation financially in the future. Higher down payments will mean lower interest rates and less money spent overall. When saving feels hard or tiresome, remind yourself of the overall benefit of it.