Everyone knows that buying a home is cheaper and more financially sound than renting. Not only will your money be going into equity that you can use later, but often, the monthly payments on a long-term mortgage are lower than the rent on the same property. However, accumulating enough money for a down payment is often a sticking point for first-time buyers. Here are three great tips to help you save for a down payment.
- Set a goal
While it is possible to buy a home with a smaller down payment, reaching the 20 percent mark is often the best way to go. This will help you to qualify for better loan terms and will help you to avoid unnecessary fees. An FHA loan, which is insured by the Federal Housing Administration, can be obtained with just a 3.5 percent down payment, but requires you to pay for private mortgage insurance. This can add between 0.3 percent and 1.5 percent of the loan value per year, and that’s money you don’t get back.
Decide approximately how much you intend to pay for your first home and then divide that by five. This is how much you will have to save for a traditional mortgage. Once you have that, setting out a plan for reaching this goal will help you to get there faster.
- Find cheaper living
To live somewhere nice in the long-term, you may have to live somewhere cheaper in the short-term. Rent is often the biggest expense that people pay, so choosing to live somewhere smaller may help you to save. Remember not to let your other living costs inflate to make up the difference and you will be well on your way.
If you currently pay $1,600 per month in rent and you manage to downsize to a smaller pad or choose to live with roommates, you could potentially cut that down to $1,000 or less. This is $600 per month that you’re saving, which comes to $14,400 in two years. That won’t cover a whole down payment, but it will make a significant dent.
- Look for side jobs
If you’re really dedicated to saving up for a down payment, you could give up some of your free time to make extra money on the side. If you have a hobby that other people want to learn, like a sport, musical instrument or foreign language, you can teach it to others to earn extra money. Another option is to use your job skills to freelance. A lot of jobs that require specific skills give you the ability to compete in the online freelancing market.
Saving up for a down payment is often difficult for first-time buyers. Keep adding to your savings, speak to a real estate professional who can help you to understand the market and introduce you to a reliable mortgage lender, and be patient – you’ll be closing on your new home before you know it.
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