When you start thinking about buying a new home, you are left wondering how will you make the down payment. The amount that you need to save for your house payment depends on various factors such as your income, the price of the house, and the loan financing. It is essential to evaluate these factors before you start your home buying journey and choose a price range for the house. Luckily, the mortgage experts at REX Real Estate have provided some additional information that can help you make better saving decisions.
How Much Should You Save?
Start by listing out a down payment savings goal. The amount that you need to save will depend on your salary and the price of the house you wish to buy. Many financial institutions including banks have an affordability calculator that can help you determine your affordability range by plugging in your income, down payment, debt, and location information.
You can also consult mortgage lenders who can inform you about the mortgage that you may qualify for based on your income. Some lenders may allow you to pay less than 20% for the down payment under special criteria such as for low deposit loans by adding private mortgage insurance to your monthly mortgage payment.
Deposit Your Savings and Windfalls
A regular contribution is the key to accumulating enough funds for your down payment. You can set up monthly automatic payments and open separate savings account to set aside money for your down payment. This will prevent any temptations to spend the money that you should be saving. Also, bank any windfalls into your savings account such as income tax refund, salary bonus, pay raise, and more.
Create a Separate Emergency Fund
While you are working your way toward successfully reaching your down payment goals, unexpected situations can arise and take a toll on your savings account. Hence, it is crucial to create a separate emergency savings fund for any unforeseeable scenarios such as accidents, health issues, or unemployment so that your down payment account does not take a hit.
Review your Budget and Cut Back on Expenses
Once you have made savings a regular habit, you can add some extra cash into your savings account through some alternate options like:
- Skip leisure travel
- Cut back on entertainment or clothing budget
- Cut down on groceries by buying in bulk
- Cancel gym membership
- Sell unnecessary stuff that you own on eBay
- Pay with cash instead of credit
- Adjust your insurance premiums
- Have a spend-free weekend each month
- Be efficient in using power
Saving for your down payment is just one part of the procedure you have to complete when buying a new home. It is critical to note that you will need a large sum of cash once you complete the purchase of the house. These include closing costs, prepaid expenses like real estate and insurance taxes, utility adjustments, and so on. Additionally, lenders want to ensure that you are in full capacity to make your first loan repayment and hence often require you to have a certain amount of cash in your account.
Hiring a Mortgage Professional
Down payment may seem overwhelming and confusing in the beginning. However, you can seek help from a good mortgage professional who will assist you with understanding the financials associated with buying a home and prepare you to make a well-informed purchase decision.