The thought of buying a home can be daunting. They cost hundreds of thousands of dollars and it starts with a large down payment. It also doesn't help that so much of our typical "American dream" is tied to being a homeowner. It feels like too much, but it doesn't have to be. If you have a good plan and know a little more about real estate, you'll find that saving for a down payment is quite doable. Here's your simple guide to saving for a home.
Review your budget
No one really enjoys budgeting, but if you're serious about saving for a house, this is the first step. Take a Look closely at all of your income and expenses . It may not be the most fun way to spend an afternoon, but until you've accounted for every penny, saving for a down payment will prove difficult.
You'll want to break your spending into two categories – mandatory and discretionary. Mandatory expenses are things like rent, insurance and food. Discretionary would include Netflix and other things you can do without, even if you don't want to!
Once you've made this list, you can look for where you can make cuts to save for that down payment. However, there are a few more steps that will make the last part of budgeting less painful.
Calculate some mortgages
The second step in your plan is to figure out how much money you really need for your home. To do this, it's best to compare the mortgage to what you're already paying in rent. If your rent is $1500 per month, you can afford a mortgage payment in the same stadium. You can also find many mortgage calculators online to help with this part.
As part of your price research, there are a few extra steps that go a long way. If you check your credit score, you can find out what interest rates to expect . You can even try to get pre-approved for a mortgage. Then you know exactly what your options are.
It's important to be able to estimate property taxes and insurance and add those to your monthly mortgage payment. This will tell you exactly how much is coming out of your pocket, and with all that, you can set a price limit for your home purchase. For your down payment, you need to save 10 to 20 percent off the total price of the home.
Weigh your down payment options
Without help, you should assume you need a 20 percent down payment for each home. If this is your first home, there are several resources that can help you significantly lower your down payment.
The first is to have the federal housing agency . This is a government program that helps first-time home buyers. FHA loans typically have lower down payments and fixed interest rates, and exploring these loans will give you real numbers to help you set your savings goals.
It's also worth mentioning that the FHA offers financial planning assistance. If you're new to buying a home, working with the FHA will help you get a good idea of all the little things you need to know about the process.
Outside of government programs, you can learn more about . Experience private mortgage insurance (PMI). This is a special insurance policy that allows you to make a smaller down payment. It will increase your monthly housing bill, but it could make getting started in your new home much easier. Basically, the money you don't put down in a down payment is split into a monthly payment that is added to your mortgage until you catch up on the down payment.
Set your budget
At that point, you know where your money is, and you know how much you need to save for your down payment. It's time to decide how you will acquire that money. It starts with saving. Even if you only save $10 a week for something, it adds up quickly over the course of a year. If you can skim your phone bill, your utilities, and maybe your insurance, you're well on your way, and that doesn't include cuts you can make to your discretionary spending.
You can also look for extra income. Everyone is talking about the side hustle, and it's a legitimate way to protect your down payment. Even if you channel your inner teenager and mow lawns or babysit for some extra cash, you'll get that down payment as long as you put it away. For an additional 50 US dollars per week you do not need much time, but it becomes 2500 US dollars per year. Every penny counts.
Saving for a house seems daunting until you break it into smaller pieces. It's not about acquiring thousands of dollars. It's about making small decisions over time that set you up for success. Stick with it and you'll be fine.