The most daunting task for new homebuyers isn’t finding the right neighborhood or choosing your favorite floorplan. It’s the down payment. If you don’t have a current home to sell that can help pay for your new home, you’re going to need cash at the closing table. Even when you do have a home to sell, you might need cash at closing.
Forget the myth of the 20 percent down payment. Although it’s good to pay as much down as you can, for most buyers you don’t need to save that much, but you do need to save something. If you’re not sure how to do it, here are a few tips and none of them involve eliminating your daily coffee habit.
Create a Budget
You know how much your rent and car payment are, but where does the rest of your money go after bills? Before you can begin saving, you need to know how much you have. Make a list of all your monthly expenses – include extras like coffee, movies, and whatever other luxuries you allow yourself. Compare that amount to your monthly income. If you have plenty left each month, that’s what you need to set aside in savings. If not, take a look at your expenses and see where you can trim and cut.
Automate Your Savings
Once you know how much you can afford to save, don’t rely on your willpower to move money into your savings account. Work with your employer or your bank to create an automatic deposit or transfer each month from your paycheck or your checking account. If you don’t have to see the money or think about it, you can’t miss it. And you’ll be more likely to let it grow in your savings.
Save All Extras
From time to time, we all see a little windfall. Maybe that scratch off ticket actually hit or you got a quarterly bonus at work. While you’re saving for your down payment, all those windfalls should go into savings. Tax refunds, raises, gifts – yes, even the $10 your grandmother still sends you after all these years. It may seem like a small amount by itself but once you put it together with all the other savings you have, it can add up quicker than you realize.
Wait on a New Car
If you can, once you pay off your car, don’t buy a new one yet. Instead, put the amount of your car payment into savings. You’re already used to spending it, so it won’t be quite as painful as other savings may be. In a short time, you’ll grow your savings even more without sacrificing any more luxuries. Once you’ve bought your new home and moved in, go car shopping.
Look for High Interest Accounts
Letting your money make money for you is a great way to add to your savings. Talk to your bank about high-yield savings or money market accounts. If you plan on saving for a long time, you might want to ask about a certificate of deposit (CD). Ultimately, you want an account that pays you interest over time to help get to your goal a little faster.
Consider Down Payment Assistance Programs
Down payment assistance programs are, generally, for first time homebuyers. Depending on the program, not owning a home for more than three years and other factors may qualify you for funds. Continue saving money even if you qualify for assistance. Lenders want to see that you have more than enough to pay your closing costs with some left over once you move in. It makes you a better risk.
The more money you can save, the better off you’ll be when you talk to a mortgage lender. Putting down more money lowers your monthly payments. Having a solid savings account helps the approval process. If you want to start saving but aren’t sure how much you need, talk to your bank or a mortgage lender.
Once you’ve got enough saved for a down payment, it’s time to begin the search for your new home. When you’re ready, give me a call and let’s talk!
Leave a Reply