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Saving up for a down payment on a home is a seemingly monumental task, one that many people are intimidated by. Looking at thousands of dollars – in some cases, tens of thousands – can become overwhelming very quickly. So much so, that many people have been deterred from attempting to purchase their first home due to fears of being unable to make the initial down payment. However, with proper planning and close monitoring of your finances, you can simplify this process, requiring far less financial strain on yourself and getting you closer to that dream home you deserve.
Step 1. Determine How Much You Want to Save
This step depends exclusively on the price of the home you wish to purchase and the type of loan you’re preparing to take out. To assist you in creating a budget for this step, many lenders that provide affordability calculators online where you can enter your monthly income, the prospective term of the home loan, and any related expenses.
This will give you an estimate of how much you should expect in the amount of your mortgage, and therefore, your target down payment. If you are fortunate, you may qualify to make a low deposit on the home loan (less than 20%). If not, don’t worry. Saving money in this way is not entirely beneficial, as down payments of less than 20% are likely to be accompanied by a Private Mortgage Insurance monthly payment.
Step 2. Develop a Savings Schedule
Now that you have an idea of a healthy budget, you need to develop a schedule for saving up those funds. Do this by first choosing a timeframe in which you need to raise this down payment. It’s best to keep this timeframe extended over several years to protect yourself from becoming overwhelmed by trying to save thousands of dollars per year.
When building your savings, avoid the appeal of saving via investments (i.e. accumulating stocks or relying on future dividends to provide funds). Instead, do this the old-school way – by allocating a predetermined amount of money to a savings account every month. Setting this up as an automatic monthly payment will ensure that you remain accountable for your savings progress.
(If any windfalls were to come along – work bonuses, tax refunds, etc. – fight the urge to spend them. Deposit them into your savings as well to accelerate your progress toward your final goal!)
Step 3. Keep Your Home Savings Separate from an Emergency Fund
It can be quite counterproductive to rely on one savings account alone for your new home, sudden home or car repairs, and surprise medical bills, for example. Instead of having to dip into your savings every time something comes up, keep the two separate so that you can continue in your progress toward building a substantial down payment for your home.
In all of these efforts, you’re going to need support to keep your progress on track. With the help of a reliable mortgage professional, you’ll be able to develop the perfect plan to get your home savings where they need to be in no time. If you’re struggling to develop an appropriate savings plan, get in touch with a mortgage professional today to work toward purchasing the home of your dreams.