By Tenley Zeisel
Buying the home of your dreams can sometimes seem like a far-off hope. It especially can feel like an obstacle if you face the daunting task of saving up for a down payment. Finding the money you need for a new home doesn’t have to be impossible. So, we’ve put together some great tips you can use to get your new home sooner than you think.
Tip #1: Find Out How Much You Need to Save
Before you even start saving money for your down payment, it’s best to have an idea of what you can spend on a house. We recommend meeting with a mortgage lender like Jet Home Loans to see how much you afford.
Typically, lenders won’t allow your monthly payments to exceed 28% of your monthly income. They’ll work with you to calculate exactly how much you can responsibly spend each month. For example, “If your monthly household income is $5,000, plan to use $1,400 to cover expenses like mortgage principal and interest, real estate taxes, homeowners insurance and homeowners association (HOA) dues,” according to Money Under 30.
So, let’s say you’d like to buy a $250,000 house and want to put the typical 20% down as a payment. You’ll have to save $50,000 to avoid paying private mortgage insurance and get the lowest possible interest rates. But, if 20% just isn’t possible, there are options where you can put down a minimum of 3.5% like with a Federal Housing Administration loan.
Tip #2: Set a Timeframe
Now that you know what you can afford, you must decide on a timeframe for making the goal of a dream home a reality. If we use our previous example of saving $50,000 as the 20% down payment on a $250,000 home, what timeline would you be comfortable to save that amount? If you’d like to buy that new home within 5 years, make sure to save $10,000 a year.
Tip #3: Set a Budget
With a $10,000 a year goal, that means putting $835 a month away. This may seem like a stretch at first, but when you take a look at your budget, it is possible. You may have to cut out a few take-out dinners each month, cut your cable television and skip vacations, but it’ll be worth it once you get your new home.
Tip #4: Open a Savings Account
Now that you’re saving, put that $835 away in special savings account that will solely be used for your down payment. According to BB&T Bank, it’s even better if you set up a fixed amount that can be directly deposited every month.
Tip #5: Reduce High Interest Debt
High interest on your credit cards can definitely stop you from saving as much as you’d like. The sooner you can pay off your debt, the sooner you can reach your goal of living in a newly constructed home. BB&T Bank also recommends paying the card with the highest interest rate off first, closing it and moving to pay the next one off.
Tip #6: Check Your Credit
Before you apply for a mortgage, make sure you check your credit report for any errors. How much you’ll have to pay and the interest added to it will be affected by your credit score. Use this time of saving to eliminate any high interest debts and clear up any errors that could affect your goal.
Tip #7: Speed Up the Process
A great way to make the process go a little quicker is by putting aside any extra money you receive. This includes bonuses, income tax refunds and gifts. By adding a few thousand dollars each year this way, you can easily shave time from your goal.
Tip # 8: Borrow From Your Retirement Plan
If you have some money saved in your retirement account, you may be able to borrow up to half of it to help with your down payment. But, “you’ll have to pay the money back within five years, including interest, but at least the interest payments will go to you and not to some other creditor,” according to CNN Money. And if you’re not able to pay it back, you’ll have to pay penalties and taxes on the amount you took out.
Nothing should stop you from getting your dream home, especially a down payment. Even though you may not have the money instantly, you can come up with a plan that best works for you. When you’re ready to start building a home fit to your lifestyle, reach out to Dream Finders Homes. We can’t wait to work with you!