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Are you trying to save for a down payment? As the biggest upfront cost of purchasing a home, this is one of the most important steps you will take as a home buyer. However, sometimes it’s hard to know how to start saving. Here are five tips that can help you get going. You’ll be on your way to the housing market before you know it!
#1 Start early
It takes a while to save for a down payment, so it’s best to get started early! As soon as you think you’d like to enter the market, it’s a good idea to set up a savings account dedicated to your down payment. You can decide how much you’d like to contribute to it every week or month, and make a point of ensuring you are consistently putting in money. Auto deposit is a handy feature for this exact type of thing.
Since down payments are tens of thousands of dollars, if not more, it’s hard to enter the market without having saved over a decent period of time. The vast majority of people need to dedicate their time and money to save up for this upfront cost of buying a home. It is often best to have a separate account specifically for this purchase, so your savings aren’t mixed in with the rest of your money. That way, you will know what you have available to spend, and what you need to save.
#2 Decide on a target
When saving for any kind of purchase, it helps to pick a specific amount you’re aiming for. For example, if you wanted to buy a new phone, you would determine how much it will cost you, so you know how much you need to save. The same can be said for building up your down payment. The more accurate you can be about the amount of money you want to save, the easier it will be to track your progress. Of course, you can’t know with certainty how much your down payment will be, because it depends on the specific selling price of the home you purchase. However, you can form a pretty good estimate. You can think about how much you are willing to spend on a home’s total purchase price, based on your financial situation and budget. From there, you can calculate how much a five, ten, or 20 per cent down payment would be. This will help you gain a rough idea of how much money you need to save to meet certain targets.
#3 Check in every month
One of the best ways to hold yourself accountable when you save for a down payment is checking in with your savings progress. Every month, or even every week if you prefer, you should look at how much money you have saved up, as well as how much you are consistently contributing. If you are making inconsistent contributions, or not putting in as much as you planned, this will obviously be reflected here. Seeing how much progress you’ve made is a good motivator to keep pushing yourself forward. It will show you how much longer you have to go, and how close you are to becoming a home owner.
#4 Try to pay off your debts
If you have any debts, it might be a good idea to pay them off while saving for your down payment. While it might seem like you are putting a large chunk of money towards your debts that could be used for your down payment, this has some long-term advantages. First, the fewer debts you have, the less interest you need to pay each month. This interest is money you can then contribute towards your down payment savings. Second, some debts can pose a challenge for people who are hoping to buy a home. While you can certainly purchase a home with debt, it can come with certain consequences such as lender hesitancy and being house poor. If you are able to enter the market debt-free, it will take some weight off your shoulders.
#5 Minimize big purchases
Finally, we recommend that you think very carefully about what you spend your money on while you save for a down payment. Big purchases can take away from the amount you can contribute to your savings account and slow down your progress. Plus, if you end up with debt as a result of a large purchase, that can bring you back to the issues we mentioned above. The more you can focus on your down payment, the quicker you will achieve your savings goal.
Saving for a down payment can be a lengthy process, but it’s obviously an important one! If you can make consistent contributions, limit your spending, and avoid debt, you will be in great shape for buying a home. Once you’re ready to hit the market, we’re here to help you make the most of your buying experience! We will be with you every step of the way to ensure you secure the mortgage product for your needs.
If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.