How to save up money for a down payment to buy a home
Buying a home is a huge milestone in your life. However, becoming a homeowner is expensive. If you aren't financially prepared you could find yourself house poor after you move in. The key to affording your dream home is to set realistic goals. It's important to start planning, researching costs, and saving for the down payment as soon as possible.
If you want to buy a home one thing you will need is a big chunk of cash saved for the down payment. The down payment is the amount of money you contribute towards the purchase of your home. The purchase price minus the amount of the down payment will be the total amount of your mortgage loan.
It's safe to say that a bigger down payment, the off you'll be. The more you save for the down payment the smaller your mortgage and interest costs. Your monthly mortgage payments will also be lower.
Here's how to save money for the down payment on a home:
Find out how much you can afford
Before you start to save up money, you need to know how much you need to save. Talk to a mortgage broker and get a pre approval. This tells you how much the bank (or other financial institution) is willing to lend to you for a mortgage. Now you know the approximate price range you can afford for your new home and how much you need to save for the down payment on a home.
Set realistic goals
Be smart as you buy a home. Just because the bank is willing to lend you a certain amount for a mortgage, it doesn't mean you need to accept it all. Use a mortgage calculator to figure out how much you can realistically afford to pay each month.
Remember that if you're currently renting and will be buying your first home, you need to factor additional costs into your monthly payments such as homeowner's insurance, property taxes, and utilities.
Track your spending
Now that you know how much you can afford when it comes to purchasing your home, and how much you need to save for the down payment, you can actually start saving. If you're currently falling short on your new savings goals, it's time to sit down, look over your spending, and find out where you can make cuts in order to afford your dream home.
A cable package with a lot of channels is great, but is keeping you from your goal? While saving for a down payment maybe Netflix for $11 a month will do. Just remember you may be cutting out things you love, but it's for a bigger goal that might matter more to you.
Keep your house account separate
The best way to really track your progress when saving for the down payment on a new home is to open a separate bank account. That way you can set up automatic transfers that coincide with your pay and watch your savings add up.