In my previous post, I mentioned how crucial it is to review your credit history before buying your new home. Getting your finances together is a pivotal part of the homebuying process. First, you have to figure out how much you can afford, and then you set a down payment goal.
There are many mortgage affordability calculators. You can search on google and put in your household income as well as other information, and it will help you to determine how much you can afford.
Once you have determined how much you can afford, next is to set a down payment goal and track it.
First, what is a down payment? Before you make a big move of buying a home, it is advisable to put a down payment towards the price of the home. So a 20% down payment on a 100,000 dollar house is $20,000. That means you have to save 20,000 dollars within a specific time frame to purchase that home.
The down payment represents a portion for the purchase of the home, and the rest comes from the lender. Most mortgages require a minimum down payment. However, VA loans and USDA loans do not usually require a down payment because it is backed up by the federal government.
The higher the amount of down payment you put towards your purchase, the better your loan terms. High down payment has advantages such as lower monthly mortgage payments, better interest rate, more equity in your home right away, lower upfront loan fees, and ongoing fees.
It is because of the above advantages why we saved 90k towards our down payment. So, how did we Save towards Our Down Payment?
Here are the top 5 ways we saved
TOP 5 WAYS WE SET DOWN PAYMENT GOALS
- SKIPPED VACATION: We went on vacation twice during the past few years. One was a local trip to the Hampton’s, and the other was to Mexico. We found cheap deals via Expedia, and that’s the only reason why we went.
- STAYED AT HOME: After graduation, the first thing I decided to do was to leave my mother’s house. She told me to avoid that mistake. She advised me to save my money towards future goals. Due to this, I was able to save so much money during that time. Fortunately, my husband had cheap rent, so he was also able to save during the same period. Move back home to your parents if the option is available.
- REDUCED EXPENSES: Because buying a house, was our long term goal, we reduced some of our expenses. For instance, we did not sign up for cable, and once we decided to live together, we picked one of the cheapest apartments in New Jersey. We did not furnish it with any expensive items, and many of the items were old. We rarely went on date nights. I enjoy cooking at home, so this was not difficult to do at all.
- SOLD INVESTMENTS: If you have a short term investment, it may be a good idea to sell. I’m not advising you to sell your 401k investment. If you have any gains on your investment in the stock market, selling may help. My husband sold some of his stocks to help us get to our 90k goal.
- GOT A SECOND JOB: Even if the job is temporary like mine was, it can help provide substantial contributions towards your down payment. I had a second job for about eight months, and we saved all the money in our high-interest savings account.
Even after all of this, you still have to figure out how much money to save every month, and how long to reach your goal. If you plan on buying a 300,000 dollar home in a year with a 10% down payment, you need to save 2k every month.
Buying a home is a huge milestone, and if you want reasonable loan terms, the savings start now rather than later.
There are many types of loan programs. Your down payment determines a lot. My next post will break down the different types of loan programs and the one we picked for our beautiful home.
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