The moment we become financially independent and are able to leave some money on the side, renting becomes a chore, and we’re itching to buy a place to call our own. However, in today’s economy and with the current state of the housing market, that’s easier said than done. Are you ready to be called a proud homeowner but cannot afford a standard monthly mortgage payment? We get it — there are bills and rent to be paid and other living expenses you need to settle each month, and you’re supposed to save for a down payment on top of all that. The journey there isn’t easy, but it’s not impossible either.
What if we told you that one year from today, you could be holding the keys to your first home? We kid you not — with a few cost cuts here and there and a slight increase in your income, you could get the money for your monthly mortgage in no time. Continue reading as we delve into ways to achieve this seemingly lofty goal.
Create a Clear Goal
The most effective way to save for a down payment is to have a clear figure in mind — that is, to know exactly how much your mortgage rates will be. Not many people can afford to buy a property in cash, which is why they need to set a clear and realistic goal from the get-go. Think about how much you’re willing to spend on a house. Experts recommend not to allocate more than 25% of your monthly take-home pay. When it comes to the down payment, it’s hard to predict exactly how high mortgage rates summer 2022 will be because the housing market is quite volatile. However, we suggest that you go with 20% because you won’t need to pay private mortgage insurance (PMI), which is an extra fee added to protect the lender.
Cut Your Expenses
In the event that you don’t have a monthly budget, you should start writing down all of your expenditures sooner rather than later. This way, you’ll see where you can cut down on some of the expenses. Giving up on your daily iced latte may not be fun, but it’s a small sacrifice to make considering what you’ll be getting in return. If you don’t know where to start, here are some ideas:
- Limit unnecessary purchases, such as streaming services or video games. One monthly subscription will suffice for the time being.
- Meal prep is a lifesaver — there’s no need to eat take-out for lunch every day.
- Brew your coffee at home instead of spending dozens of dollars in Starbucks daily.
- You don’t need to purchase every trendy item that comes out. Fast fashion is full of passing trends you’ll only wear a couple of times before they run their course.
Another way for you to settle your monthly mortgage payment is by increasing your income. Even if you adhere to your budget at all times, it’s not always possible to allocate funds toward your down payment savings account. There’s no need to fret, though — this simply means you need to be extra creative. Scour your garage and attic for items that haven’t been used in a while and put them on sale. It’s an easy way to earn some extra cash. Many prospective homeowners also look for a side job to boost their income. This hustle doesn’t necessarily have to be yet another chore you need to fulfill. You can put some of your interests and talents to good use, like dog sitting, tutoring, driving an Uber, and more.
Create a Separate Savings Account
Some of you might not want to leave your down payment money in your checking account. The good news is that there are several alternatives. You could look into a high-yield savings account that has easy access and high liquidity. Suppose you have a larger amount of savings — you can even consider opening a certificate of deposit, as it has higher interest rates. However, keep in mind that you won’t be able to withdraw any money for at least six months unless you want to pay a fine.
Look for Assistance
Not all mortgage rates are the same, which you will quickly learn once you look into the types of loans available. It’s a common misconception that all down payments need to be 20%, as different types of loans have different requirements.
- Conventional loans — Most of us associate the word mortgage with traditional loans. They adhere to standards set by Freddie Mac and Fannie Mae, and if you have a solid credit score, your down payment can be as low as 3%.
- FHA loans — Issued by the Federal Housing Administration, FHA loans have a down payment of 3.5%. The exact numbers vary depending on your credit score.
- USDA loans — Those wanting to own a house in a rural area can apply for a loan backed by the US Department of Agriculture and skip the down payment altogether.
- VA loans — US Department of Veteran Affairs also issues loans without the down payment requirement. The only stipulation is that you need to be a current or former US service member or qualifying spouse.
Saving for a down payment will take some time, but it’s important to remain patient along the way. As long as you follow the steps mentioned above, you’ll be fine. You can even consider looking for help from a professional, as realtors have been in the game for a long time. Before you know it, you’ll hold the coveted title of a homeowner.