Obviously, the first step to saving for a down payment is understanding how much house you can afford. Instead of thinking of the end dollar or loan amount on the home, think about the monthly cost you are willing to spend on a mortgage (including property taxes and insurance.) Lenders will typically help you interpret your monthly housing payments into a final loan amount, so you will not have to worry about that.
Once you understand what loan range you are looking at, you can determine how much you are willing to pay for your future home. Try to aim for putting down a 20% down payment if possible. Remember, if your income fluctuates or your industry has high turnover, be smart about how much you are looking to spend on monthly payments and consider utility bills, repairs, association fees, and other inevitable expenses.
2. Create your savings plan.
Once you know how much money you need to save for your down payment, you can start creating your savings plan. Start by planning to set aside a certain dollar amount each month, or better yet, each paycheck. By determining this, you can also predict how long it will take you to save before you have the full down payment in your bank account and you can officially start house shopping.
Expert tip: Try putting away a little extra cash every chance you get. An extra $50 here and there will add up fast and before you know it you will have the money saved up before your personal goal.
Play around with a savings calculator to see how setting a longer or shorter savings timeline will change your monthly savings requirements.
3. Hurry up the process.
If you are or know someone who is fiscally savvy, you can try speeding up the savings process by getting better returns on your money. How? By investing some of it in stocks. This is obviously a riskier approach to saving money, but if you have several years before you need to by your home, it may be an option worth looking into.
Investing in stocks could greatly accelerate your savings plan and you would not be required to save quite as much on a monthly basis to reach your goal. Your money would simply be earning more money for you. However, we recommend consulting a financial advisor if you decide to take this route. The stock market can be tricky and figuring out where you should invest takes a lot of research.
Expert tip: Do not put all of your down payment savings into stocks. Try limiting yourself to 20-25% of the whole in case the market takes a negative direction. Keeping your savings protected should always be your top priority.
In a Nutshell
There are many savings tips that we haven’t even touched on that can help you make your dream home come true. And if the traditional 20% down payment is just not doable, there are programs that are available to help you pick a mortgage within your means.
To find out more, contact us.
Heidi Joy & team and our lenders are always available to discuss down payment and mortgage questions you may have.