Buying A Home: 7 Ways To Save For Your Dream Home
The whole process of buying a home can be exciting, but it’s mostly nerve-wracking! That’s why saving money for a big down payment is important. It helps the buying process go more smoothly.
Real estate professionals and financial planners routinely recommend a down payment of 20% of the total investment of the prospective home.
But, if you’re just starting out, 20% may not be realistic.
That’s where’s private mortgage insurance, PMI, comes into play. So how much does PMI cost? Good question. The answer depends on a host of variables. However, it’s generally between 0.3% and 1.5% of the loan amount.
And yes, carrying PMI does cost you more. That’s why real estate professionals encourage 20% down.
Here are 5 ways to grow your savings for a large down payment:
1. Decide when you want to buy a home. Having a timeline in mind is the first step to saving for a home. Do you want to buy in the next 5 years or the next year? If it’s sooner rather than later, you may have to make peace with paying PMI.
2. Get prequalified for a mortgage. Before you look at the first house, sit down with your banker, or mortgage lender, and determine what you want to qualify for. This will make the home buying process so much easier. It also allows first-time home buyers to see how much they have to spend to get into a new home.
3. Do the math. Once your lender prequalifies you, you do the math to see how much you will need to put down. If you want to buy a $300,000 home, you’ll need $60,000 to meet the 20% down payment threshold.
4. Understand that the down payment isn’t your only real estate expense. Many first time home buyers think they only need down payment money to get into their new house. Not true. You’ve also got closing costs and other miscellaneous fees that a buyer pays.
5. Look at your monthly expenses. Once you know how much of a mortgage payment you qualify for, you’ll see how close you are to buying a home. By examining your monthly expenses, you can see where you can save more each month. Plus, it puts you in the mindset of savings. You’ll find other ways to save, too!
6. Look at your spending habits. Are there areas where you can cut back? Many times, you’ll find spending habits that are exactly that, a habit. You can either cut out or cut back on these items, which helps you get closer to your home buying goal.
7. Steer clear of risky investments! If you’re investing money, avoid anything risky. Stick with the traditional avenues like CD’s (certificates of deposits), and savings accounts. These paths protect you from market fluctuations.
Yes, you can save for a house but it does require discipline. Stay focused and make sound financial decisions. This is the surest road to home ownership!