Making the down payment on a home is the biggest obstacle most home buyers face. Since many lenders require the buyer to put down 20 percent of the purchase price, it can be difficult for some people to come up with such a large amount.
If you’re planning to buy a home in the near future and are concerned about making the down payment, the following tips are for you. These smart strategies are designed to help you sock away the cash you need much easier and more quickly than you thought possible.
Set a Target Budget
Knowing how much you can afford to pay each month for a mortgage will help you estimate the amount of down payment you need to save for. Most experts suggest spending between 25-30 percent of your income on a mortgage.
Consider the Different Types of Costs Associated with Buying a Home
When you buy a home, you are faced with two different types of costs: upfront costs and on-going costs.
Upfront costs include your down payment, closing costs, the home appraisal fee, and the home inspection fee. The down payment can be up to 20 percent of the purchase price, but first-time homebuyers usually qualify for substantially lower down payments. For both the inspection and the appraisal, you can figure on spending between $300-500 each, and closing costs can be as much as 5 percent of the purchase price.
Set a Timeline for Saving
Once you’ve figured out the amount of money you’ll need up front for buying a home, take a look at your current income and find areas where you can cut costs to save money each month. Divide the amount of upfront costs you need by the amount of money you can save each month to determine how many months it will take you to achieve your goal.
Make a Budget and Track Your Spending
If you don’t already have a budget, now is a good time to make one. Having all your income and expenses displayed in front of you will help you identify many opportunities for cutting back and doing away with unnecessary expenses that will help you reach your down payment goals faster.
Share Your Home Buying Goals with Friends and Family
While most people tend to keep money matters to themselves, sharing your home buying goals with family and friends may actually help you reach them faster. When you know someone will inevitably ask you how your savings is going, you’re more likely to stick with it so you can give them a positive answer. Also, the more people that know your goals for buying a home, the more they are likely to help out. Ask for small donations for birthday or Christmas gifts to help increase your savings for a home.