Youíve been thinking it for a while: ďI really should start putting some money aside for a down payment.Ē But, you just canít seem to find any wiggle room in your budget.
Youíre not alone. Saving for a down payment isnít easy. Especially if youíve got rent, car payments, student loans, and are trying to put money aside for retirement.
In todayís post, weíre going to talk about how to make a game plan for your down payment. This way, you can start saving immediately, bringing you closer to your goal of homeownership each day.
The first rule of budgeting is that you need to know where each dollar you earn ends up. From there, you can start re-allocating funds to the things you want to save for.
There are many apps and tools available to help you out with this process, including YNAB (You Need A Budget) and Mint. If apps arenít your thing, you can always use a simple spreadsheet.
First, account for all of your income. This could include your salary, rental income, or other forms of money that you have coming in.
Next, detail each of your weekly and monthly expenses. Everything from groceries to the internet bill and retirement contributions.
Now itís time to make some tough decisions. Are there ways you can cut down on your weekly or monthly expenses? Maybe you arenít using that Amazon Prime membership as much as you thought you would. Or, maybe youíve decided you donít really watch anything on cable but the news. There are a number of ways one might cut back on their monthly bills.
Get creative with family plans, bulk shopping for food, or cooking budget-friendly meals. All of these savings will add up quickly.
Letís face it, if you have thousands of dollars in student loans, you might not be able to aggressively pay them down by the time you want to move out of your apartment.
But, for small debts (under $1,000 credit card debt, for example), you could save more in the long run by paying them off and avoiding interest payments.
With the right savings account and credit card, you can earn money through savings interest and through cashback rewards on credit cards.
First, find a savings account with the highest possible interest rate. These can often be found from choosing an online bank who doesnít have the overhead of running branches.
Next, direct deposit a set amount of your paycheck each week into that savings account. This way, you can be sure that you wonít dip into your down payment savings.
To generate additional income, you can use cash back rewards from credit cards for things like groceries and gas. Choose a credit card that offers the best cash back rewards for things like groceries and gas purchases. The key here is to only use your credit card on necessities and to always pay off the card in full at the end of each month.
If you follow these four steps, you should be able to streamline your down payment savings process and start saving right now.
Itís common knowledge that a 20% down payment is key when you buy a home, but is it absolutely necessary? With average home prices continuing to rise, itís hard to actually save up that sizable of an amount of money. Thinking bout the numbers, buying a home may seem impossible.
Thereís good news: The 20% down requirement is actually a myth. If you put less than 20% down, you can still get a mortgage with most banks. Thereís a reason why you hear that you need to put 20% down to buy a home. If you donít put 20% down, you need to get either private mortgage insurance (PMI) or government insurance from the Federal Housing Administration (FHA). These types of mortgage insurance protect the lender if you donít make your payments and the home is foreclosed on.
When your loan-to-value ratio reaches 80 percent, youíre able to ask your lender to cancel the insurance. Once the loan-to-value ratio reaches 78 percent, the lender has a requirement to cancel the PMI. This type of insurance can be costly, averaging at least a few hundred dollars a month.
Look at financing before you find a house. Thereís a few programs that can help you to buy a home without 20% down. Thereís different ways to qualify for these programs, so your best bet is to talk to a lender well before you start your home search.
Government programs through places like the US Department of Agriculture and the Federal Housing Administration help people to buy a home with very little down- anywhere from 0-3.5%. Some of these programs can prove to be costly on the backend, due to extra insurance requirements, but they do provide an alternative path to home ownership.
Thereís also an option to actually finance the down payment with what's called a subordinate loan. his may make sense for some, however, you are taking out a loan in order to pay for another loan. The process may be counterintuitive for you and your financial situation.
While thereís many different paths to owning a home, thereís no one right answer. Since everyone chooses different properties and has different financial situations, thereís a way for you. Even if saving up a 20% down payment is seemingly impossible, thereís way to get around it. Start with talking to your bank and other lenders to see what types of programs are available to you and discover what your path to homeownership is.
If you are thinking of buying your first home, youíre thinking of making the single biggest purchase of your entire lifetime. Real estate is complex. From getting finances in order to understanding the entire process to securing the home you love, thereís so much that youíll need to know when it comes to buying your first home.
A down payment is a one-time cash payment that youíll provide at the closing table when you buy a home. How much your down payment is will have an effect on how much your monthly mortgage payment will be. It will also affect your initial home equity value.
First, youíll need to think of a savings goal and a timeline. The general rule is that if you own a home for at least 5 years, you have gotten your ďmoneyís worthĒ out of the closing costs and the fees you paid at the time you purchased your home. If you donít think youíll stay in a home for at least 5 years before making another move, you may want to consider renting until you know where you want to settle.
Youíll need to calculate just how much home you can afford. Look at potential monthly mortgage payments plus taxes, fees, insurance, utilities and other monthly expenses that you have.
In dual-income households, itís nice if the living expenses can be covered just by one personís paycheck. Once you have an idea of your budget, you can price out homes that will meet your needs and be in your price range.
The best practice in buying a home is to put 20% down on the house. With this sizable down payment, it will be easier to get approved for a mortgage. Youíll also avoid needing PMI (private mortgage insurance.) This is an additional cost for people who put down less than a 20% down payment. This can cost you a lot of money each month, so itís best to save as much as you can for that initial down payment.
Donít be discouraged. You can still buy a home with a lower percentage of a down payment, but youíll have to pay for the PMI and include the additional expense in your budget. The Federal Housing Administration has many different options available that allow you to put a smaller down payment on a home, so do your homework.
Once you get an idea of about how much youíll spend on your home, you need to take action and start saving. There are many ways that you can save automatically without even thinking about it. You can choose a fixed amount or percentage of your paycheck and save it automatically into the house fund. Save as much as you can so youíll be able to make your home purchase more quickly. You may even want to consider putting your money into a money market account for a higher return on your savings once you reach a certain goal.
Whether you have received a gift or a sizable Christmas bonus, make sure that you put that money away towards your home purchase. Every little bit helps. While we may have an inclination to want to spend the money on more immediate things, youíll be happy that you saved your money when you head to purchase your house!
The IRS allows a tax benefit for first time home buyers. You can take out up to $10,000 out of your IRA or Roth IRA for a first time home purchase. Your Roth IRA account must be at least 5 years old in order for you to do this. Distributions from this account are tax-free, but youíll need to pay tax if you withdraw form a traditional IRA. You should discuss any withdrawals that you do make with your financial advisor and your tax advisor. This could be an opportunity for you to build your wealth in a new way, so make an informed decision.
Happy saving and happy house hunting!