Homeownership is the dream for millions of people. But sadly, very few have the finances to pull off such a huge transaction. Luckily though, everyone can start saving to buy a house. While you won’t have to save up the entire sum, what you can do is save just enough for a down payment.
All that’s left is for you to get approved for a mortgage loan and you can finally become a homeowner. So that begs the question. How do you save big for your next house?
First Off, How Much Do You Need?
For many of you reading this article, this won’t be your first rodeo. But for those who are buying their first house, we should clarify just how much they need to save up. It is a generally accepted notion that a down payment is 20% of the total price of the house.
Well, we’re sorry to tell you that it is actually much less. In recent times, down payments have gotten more flexible. Homebuyers looking to purchase homes across America can expect to put up a much smaller down payment. In West Virginia, for example, the median down payment is 12%, according to Forbes.
By knowing how much money you need to start, you’re not only preventing a mistake but preparing yourself to become a homeowner the right way.
Take Care Of Any Outstanding Debt
Even if you have the money to put for a down payment, that doesn’t mean you can take out a mortgage loan. To do that, you will have to get your finances in order. Banks look at your credit score when determining your eligibility. Plenty of factors impact your credit score, such as fast you make payments, how much credit you have on cards, and of course, how much debt you own.
This last one matters a lot, hence why it deserves a section of its own. Carrying a lot of outstanding debt will harm your financial power. In the eyes of the banks, carry too much debt makes you an undesirable candidate for a mortgage loan.
So before you even think about saving to buy a house, you have to get out of debt.
Put Retirement Plans On Hold
People are encouraged to invest in their future. One form of investing is putting money into a retirement account. However, it might work counterproductive if you’re trying to save money for a down payment while allocating a portion of your salary into a savings account.
If you have the financial power to do it, then by all means continue. But if not, then maybe you should put retirement plans on hold for the time being. We should mention that this should only be temporary and until you have the necessary amount to put for a down payment.
Cut Back On Luxuries
The best way to save money to buy a house is to manage your finances. And the easiest way to do that is by cutting back on luxuries. No doubt we have bills to pay. But bills, food, and clothing are necessities. Paying for luxuries, on the other hand, is something that you can indeed cut back on.
No doubt you’re making one of the biggest financial decisions in your life, and that doesn’t come without a few setbacks. Buying a house is by no means a cheap purchase, so you will have to sacrifice a few things if you want to be a homeowner.
If you’re not sure where exactly your money goes, what we recommend you do is create a budget. This doesn’t have to be anything spectacular; an excel document will suffice. Start by putting income on one side and expenses on the other. Make sure to divide the expenses section into essentials and nonessentials or luxuries.
Put each expense in the correct section and you’ll have a pretty good idea of where your money goes. From then on, find ways to cut back on expenses in the luxury section. If you have a Netflix and Amazon Prime subscription, then eliminate one of those. You can do tons of things to get your finances in order, and that will only help you save money to put for a down payment.
Ask Family and Friends
Being a homeowner means living independently. But that doesn’t mean you can ask for financial help from the closes people around you. While no doubt friends and family are there to help us in troubling times. And if you’re looking to become a homeowner, asking for financial help isn’t a far stretch.
Although nothing guarantees your friends will chip in, family members tend to be more understanding. Thus, you might have a better chance if you approach them.