There are several things you may want to save for in life, including retirement and buying your first home. The retirement planning should be started as early as possible if you want to live comfortably when you finish work. Although it might seem a long way off now, it will be here before you know it.
Saving a down payment on your first home is also better started sooner rather than later, or you will still be living with parents or renting somewhere for much longer than you want.
How Much Do You Need For A Down Payment?
The amount you need to save for a down payment depends on many different things. Generally, mortgage providers want you to pay at least 20% of the value of the property you are interested in, but there are deals that will let you have a mortgage with a deposit that is a lower percentage.
If your borrowing does not fit the normal parameters, such as a larger lending ratio or a bad credit record, you are likely to pay a higher interest rate. It is a good idea to arrange a meeting with mortgage brokers like Altrua Finance. They have all the expertise needed to guide you through the minefield of rules, regulations, and ways that they can help you to get a good deal on a mortgage.
They will be able to help you work out the price range of properties you should be looking at. Once you have agreed on an amount with them you should not exceed it, as the likely outcome would be you being refused a mortgage.
Don’t forget that as well as the down payment you will need money to cover other expenses as well. Closing costs can be a significant amount and then there are search fees and moving fees. These can all mount up so do not stop saving once you have achieved your target down payment.
Set yourself a time frame to work towards, as this can often be an encouragement to save.
Do Not Go To Your Limits
Mortgage lenders like Rocket Mortgage will set an upper limit for the amount they are prepared to advance. This does not mean that you have to go to that limit. It may feel that the amount they have said will let you buy a better property, but it also means that you will need to save more for the down payment, and will have a bigger monthly mortgage payment to meet.
Keep well with the limit they have said. This will mean you will have your down payment sooner and a monthly payment that is more manageable.
Set Up A Savings Plan
Work out a budget that you need to live off and save at least a large part of what is left from your income. It does not matter if this is just a small amount, you will soon see it starting to grow. In fact, saving can become an obsession if you are not careful, and you should not let it rule your life.
However, you can help it along by adding any other income that comes your way. If work some overtime at work, or earn a bonus, add that to your savings pot. If the nice people at the IRS send you some tax back, put it into your savings account. Speak to friends and family about birthdays and Christmas. Tell them your plans and that you do not want any presents for These special events. A gift of money instead can help to swell the amount of money you have saved, even if that gift is just $5. If you have any personal assets that you no longer need, sell them and bank the cash.
All these extra things can add up to a sizable sum, and that will increase the amount of interest your savings earn.
Saving your down payment is not a long-term investment. You will need to be able to access your money quickly when the time comes. Check out what different banks are offering, as some of them will give you a better interest rate for a fixed amount of monthly savings. Remember, interest is generally added to your balance quarterly, so each amount a bank adds is then making you more interest for the next three months.
None of us know what will happen to us in the future. In fact, even what happened tomorrow is uncertain. It could be that you lose your smartphone and need to buy a new one, that your car breaks down and needs a repair or that your hours are cut at work because of a slack period. It could be even worse in that you could be injured in an accident, taken ill or lose your job altogether.
The world does not stop because of your savings plan, and you need to be prepared financially for the worst things to happen. The best way is to keep a separate account in which you also save some money, but with a different purpose. This could be an emergency fund, so if some disaster takes place, you have the finances to deal with it.
This should be something that you continue with even after you have moved into your first home. Knowing you have a bit of cash behind you for emergency situations can help to make life a bit less stressful.
Learning to live within a budget is all good experience for when you do move into your first home. Then there will be the monthly mortgage payment to make, utility bills, food and lots of other expenses that relate to owing your own home.
Think of the savings period as preparation for when the time comes that you will have no choice but to live within your means. It is unlikely that your monthly savings will equal what your mortgage payments will be, and you may well have even less than before to spend. But owning your own home will make that worthwhile and you will be so pleased that you saved that initial down payment.