Save Up For a Down Payment!
If, after careful assessment of costs, budget, and future goals, you’ve decided to take the plunge and make the investment in home ownership
, it’s time to start designating savings towards a down payment. Even if you anticipate your official initiation into real estate a few years down the line, you’ll be better off saving aggressively now than financing more of the mortgage later on, or worse, raiding your retirement accounts to make up the difference between what funds you have available and what house you dream to afford.
Here are some simple and smart ways to start planning for a down payment today.
Put It In the Budget. One of the best ways to realize major financial goals is by breaking them down into manageable pieces and working those intermediary targets into your monthly budget. See where you have room to cut back in other expense categories and explore opportunities for supplemental income while you fund your future of home ownership.
Create a line item in your budget that specifically targets this goal, especially as the prospect of buying a home draws nearer. Setting up automatic contributions from your paycheck to a savings or investment account can keep you from preemptively spending those contributions elsewhere.
Plan on 20 Percent. Estimate your total home buying budget so that you can make a realistic assessment of your projected down payment. Experts recommend putting down at least 20 percent. Not only does the 20 percent rule mean lower monthly payments and less interest paid over the life of the loan, it also means having more equity in your home from the start and avoiding costly private mortgage insurance.
Check Your Credit.
In addition to saving up for a sizeable down payment, checking in and, if necessary, improving your credit
, can save you a whole lot of interest when it comes time to take on the mortgage. The better your credit, the better deal you can negotiate with your lenders, saving you thousands over the life of your loan. Establish a history of in-full and on-time payments and check your credit reports for accuracy to make sure your score isn’t suffering because of an error or worse, fraud.
Shop Around. Once you’ve zeroed in on a home that falls within your personal and financial criteria, it’s time to start shopping for a lender. Don’t just walk into your bank and take the first deal you get. Consider all the factors - the mortgage rate, closing costs, expected down payment, private mortgage insurance, and potential prepayment penalty. The more you’re willing to put down up front, the better deal you should be able to negotiate with your lender.
Save for the Extras. You don’t want your 20 percent down payment to totally clear out your savings. Rule of thumb is that you will need approximately 5 percent of the property value for closing costs. In addition, many owners like to make renovations onto the new property to make their house their home. Save up to cover these additional costs of home ownership.
Preparing for your future down payment with sufficient savings will leave you with ample options come home buying time.