Purchasing a house is not an easy undertaking. A glance at the cost of the house is enough to make you run for the hills and opt to live in rentals for eternity. Fortunately, you can take up a mortgage from a bank or a mortgage lender, pay, and live happily. All you need to do is pay a house down payment of 5% to 25%, as required by law or by the mortgage lender.
Paying the down payment seems manageable, right? Why then, do people struggle to pay? Saving early for a house down payment increases your chances of getting a mortgage, potentially reduces the mortgage interest rate and the payable instalments. Outlined below are steps to deploy when saving for a house down payment.
Evaluate the Situation
Before you begin saving, it is paramount to evaluate:
1. The Cost of the House
Estimating the cost of a house and its location will enable you to create a savings budget. If you already have one in mind, inquire on its price from a real estate agent. If not, you can ask on the cost of a house relatable to that which you desire.
2. Mortgage Rates
Different mortgage lenders have different rates of down payment. The usual percentages are 20% for conventional mortgage loans and 5% for Government-backed mortgages. Depending on the mortgage you plan to work with, you can estimate the amount you need to save.
When would you like to purchase the house? A shorter timeline will demand higher annuities in savings. Extending your timeline, however, will allow you to save more though it will tax your patience.
4. Your Financial Portfolio
Calculate your monthly expenditure against your income to assess the amount that will be sustainable in saving for a house down payment. A mortgage lender will check on your credit ratings, therefore it is paramount to as well assess your debt portfolio and strive to cover any outstanding debts.
Create a Budget
Set a budget that will enable you to save the desired amount in the estimated timeline. Saving for a house down payment might call for you to make some sacrifices. You will need to cut on unnecessary expenses and pay close attention to your spending habits. You can decide to move to a smaller rental apartment, forgo some weekly eat outs or miss out on some vacations to commit the reserved amount in saving for the house down payment.
Buying a house to make a home is one of the most important milestones you will ever make in your life. If necessary, do not be afraid to hold off on other savings plans like retirement or college funds. You can always revert after acquiring the mortgage. Ensure your saving budget is sustainable in the long term. It is better to save in moderation over a long period than to save exceedingly in a short timeline.
Open a Saving Account
Set up a savings account and dedicate it solely on saving for the house down payment. Doing this will enable you to track your savings and reduce any temptations to use the money. A separate account will as well allow you to request a financial statement from your bank to show the mortgage lender. This financial statement can acts as a trust, a cognitive guarantee, that you are responsible and will pay your mortgage.
Once you set the savings account, start saving. Stick to your budget. Strive to surpass the mortgage down payment rate. A higher house down payment prompts mortgage lenders to reduce their interest rates because there is reduced risk. A Lower one might make them ask for private mortgage insurance (PMI), which serves as payment in case you default.
Find Additional Sources of Income
You can search for other sources of income, for instance, caring for pets while owners are on vacation, or babysitting on weekends. Sacrifice some of your leisure time for a second job. Having another source of income will allow you to save more than you budgeted, which might come in handy for relocating expenses. Higher savings will enable you to pay more for house down payment, which will subsequently reduce your mortgage payment instalments. You can host a garage sale to sell clothes or house equipment that you barely use.
Prioritize saving for a house down payment and make it intentional. Making this sacrifice will pay off eventually. You can always find a financial consultant to help you in creating a sustainable budget and acquaint you on mortgages.