Saving money can sometimes be more challenging than making it. Buying a home remains a big American dream and the average cost of down payment keeps rising. That’s why some younger couples are delaying their plans to buy a home. But if your combined income can do it over a specified number of years, then have conversations about how to save for a house.
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8 Tips on How to Save for a House
One of the biggest challenges every couple faces is to figure out how to buy a house using a money-saving plan that works. If your circumstances are right, these tips on how to save for a house will help you raise money for a down payment.
1.Find out how much you need
Are you worried that you can’t afford the 20% down payment? Well, you can do without it since many lenders don’t require it anymore. Your good credit score and income may allow some banks to offer you a traditional mortgage loan of as low as 3%. Besides, if you qualify for a VA or USDA loan, the down payment could be 0%. Get a mortgage loan officer to help you determine the loans you qualify for and everything else.
According to valoans.com, the VA loan is sponsored by the Veterans Administration and the USDA is sponsored by the United States Department of Agriculture.
The USDA home loan is a zero down payment program that’s designed to help low-income families make homeownership possible.
2. Consider using your retirement savings temporarily
“Temporarily” is the keyword here. Using your retirement savings long-term wouldn’t be ideal at all. But, if you are a young couple that’s actively involved in 401(k) or IRA, using it temporarily to down payment savings could be a smart move.
3. Practice saving automatically
If you’re looking at how to save for a house without being tempted to use your retirement savings, switch to automatic saving. You can automatically transfer a particular amount from your paycheck into your savings account every week or month. It only takes contacting your bank and requesting them to automate monthly withdrawals into your separate savings account.
4. Get your debt under control
If your ultimate goal is to purchase a home, then using a huge amount of your money towards debt payment will make it difficult. Make sure you cut down any debt you have by refinancing any student loans with high-interest rates.
5. Look for a side job
Consider making a quick buck to supplement your down payment savings. You can start shopping/delivering meals for a delivery service online or driving for a Uber or Lyft. Even pet sitting, walking dogs, etc., can put extra money in your pocket. Freelance opportunities can generate significant income to help you save more for a house
6. Ask for gift money
When your relatives would like to give you a present, tell them you prefer gift money for your down payment. Not everyone might buy the idea, but some will and support you to become a proud homeowner.
7. Consider Downsizing
Downsizing means cutting down your expenses to save more. This could mean keeping your romantic moments alive but on a low budget. You can limit eating out and eat home as well as take your lunch to work.
If you’re struggling to save money on a tight budget, click here for some great tips!
It’s cheaper. What about moving to a smaller apartment, selling your other family vehicle, etc.? A temporary downsize will help you save a lot for a house. After all, the best way to double your money is to fold it and put it in your pocket.
8. Recognize that you’re a team
Working together and listening to each other on how to save for a house makes you a great team. Also, consider bringing in a real estate agent to take part in the discussions. They will counterbalance your differences and help you agree and maybe bond even more in your relationship. Make it an opportunity to learn from each other plus the agent and save in love and peace.
Budget for Saving for a House
According to nerdwallet.com, a budget is a spending plan based on your income and expenses. I hope you’re not scared of budgeting like most people. If you’re a homeowner with money; great! It takes a budget to know exactly how to save for a house. And what do you know about budgeting in the first place? It’s a simple exercise, though!
It’s all about how much savings your monthly budget can cover in your mortgage payment plan if you can’t make an all-cash-offer.
Check out this formula on how to budget and buy a home successfully:
Potential Savings = Income – Expenses
To begin, add up all sources of income your checking account receives every month.
Paycheck 1 = $1,500
Paycheck 2 = $1,500
Freelance Work = $500
Total Monthly Income = $3,500
Then, make a list of your monthly expenses. Check out some common categories to include:
Grocery = $300
Gas & Car Insurance = $200
Utility Bill = $150
You can make a table like this and simply deduct your total income minus your expenses:
Once you know exactly your potential savings every month, here is Dave Ramsey’s mortgage calculator you can use to help you determine how much you can afford.
How Much Should I Spend on a House?
The rule of thumb is, don’t spend above 28% of your monthly income. In addition, your income has to be stable enough to make regular payments.
Using a mortgage calculator to find out the amount your income can raise every month for the down payment is the best thing to do.
These additional costs include closing fees and legal fees which amount up to 3% of the total cost of the house. Remember that once you’re done with the down payment, moving to the house will come at a cost too, plus the labor and the initial fixes.
Dave Ramsey’s thoughts on How to Save for a House
Dave Ramsey, the author of seven national bestsellers, is an expert in personal money-management. When it comes to how to save for a house, he is your go-to expert for smart decisions that work.
He recommends putting at least 10-20% down for any mortgage with a 15-year fixed rate. It may seem difficult, but many like you do it successfully.
Also, Dave recommends that mortgage payment per month should be 25% of the total take-home pay. He points out that it’s essential to know how much you can afford to avoid any potential financial trouble. Interviewing real estate agents would also be a necessary step to get the right experienced expert to help you.
When should I buy a home?
If you have completed these 3 baby-steps suggested by Dave, you’ve reached the right stage to buy a house. These steps are:
1. Having your starter emergency fund savings of $1,000
2. Paying off your debts apart from the house using the debt snowball
3. Saving 3 to 6 months of fully-funded expenses in an emergency fund.
In addition, you should consider these factors to figure if you’re qualified to get a house:
Your income should be stable and with an impressive debt-to-income ratio, as lenders consider it an important basis. Remember, your mortgage costs shouldn’t exceed 28% of your stable monthly income.
High credit score
When your credit score is as high as at least 620, you can qualify for most mortgages.
Want to improve your credit score? Check out these 10 Easy Hacks on How to Improve Your Credit Score in 30 Days.
Whether your debt is student loans or credit card debt, if you’ve already paid enough towards becoming debt-free, it’s time to invest in a home.
Enough Down Payment
Although some agents don’t require down payments anymore, having a readily-available fund could help you speed up the process of getting your dream house. Plus, it will make your monthly payment less than purchasing without a downpayment!
How to save for a down payment
Saving money for a down payment can be an intimidating process if you don’t begin with a smaller number. Decide your buying time and plan according to the given months and deadline of your goal.
Now, take your required down payment and divide it by the number of months you’ve scheduled to save.
For example, you have to save $34,000 for a down payment of a new home in 2 years. This means that you would need to save about $1,420 each month to reach your goal.
Note that if you follow the Baby Steps above, you won’t have any debts to suck away the cash you need to save for the down payment.
Final Thoughts on Saving for a House
Figuring out how to save for a house successfully isn’t a walk in the park. It takes determination and smart choices. You don’t want your hard-earned money lost in a bad investment. If you hire an experienced agent as your personal advocate, you’ll end up with two things: A dream house and your widest smile ever!
Once you’re done saving money for the down payment for a home, keep your money-saving habit alive. Buying a home insurance policy is one way to do so. Remember that homeownership involves several surprise costs, and your continuous savings account will take care of such costs.
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