Buying a new home can be . . . well, frightening. It’s the largest purchase most people will ever make, and that’s just a little scary. In fact, a lot of us think it’s a goal beyond our financial reach. There’s that big down payment and those monthly mortgage payments, as well as closing costs, property taxes, insurance, costs for maintenance and repairs, and more. At first glance, it may seem like something to be achieved in the far future, especially when you’re currently paying on rent and utilities and car loans. But you can do it. Check out our 5 ways to save money for your new home in .
1. Understand the Costs of Buying a New Home in
The first and most important step toward saving for and making any major purchase involves understanding what it truly costs. Very often, the full and actual cost goes far beyond the purchase price. In order to save money for your new home, you have to know how much you need to save.
To buy a new home in , you know that you’ll have to come up with a down payment, maybe as much as 20% of the purchase price. “A down payment is the cash you bring to the closing table when buying a home. . . . The down payment acts as an insurance of sorts for your lender. When you hand over money from your own account, you’re officially invested. You’re more likely to make good on your mortgage payments month after month and year after year.”
You should then aim to save up a 10% to 20% down payment. Typically, the more you can pay down when you buy a new home in , the better the interest rate you can get on your mortgage. Also, with a higher down payment, you won’t have to pay for private mortgage insurance (PMI).
But the costs of buying a new home include much more than the downpayment, for example:
- private mortgage insurance (PMI) – In most cases, if your down payment is less than 20%, you’ll have to pay for private mortgage insurance. It is another form of protection for the lender and is usually tacked onto your monthly mortgage payment.
- Inspection and Appraisal Fees – Before you can get a mortgage to buy your new home, it will have to be appraised and inspected, both usually being lender requirements. The appraisal and inspection usually run $300+ each.
- closing costs – Closing costs can often add up to a significant amount. Sometimes the seller will agree to pay a portion of the closing costs, but if that doesn’t happen, you’ll usually wind up paying between 2% to 5% of the total mortgage value.
2. Get a Handle on Your Debt
Saving money to buy a new home in also means having less debt (or at least not taking on new debt). You have to have money left over after paying all your bills and living expenses to actually save. In addition, with a lighter debt load, it will be easier for you to qualify for a mortgage and at better rates.
So get rid of a much debt as possible. Start by paying off credit cards and avoid making any new purchases with those credit cards. At least pay off your high-interest credit cards, and if you can’t do that, then try to transfer that debt to low-interest cards. If you have any large loans like student loans, you should consider refinancing to reduce your monthly payment burden.
3. Determine How Much You Need to Save
In order to achieve any goal, you have to have a definite, fixed target. And that goes for buying a new home in as well: a top priority should be determining pretty accurately how much you need to save.
First, you’ll need to determine the price range (as narrow a range as possible) of the home you want and can afford. Your local agent can be a great help here because prices can vary widely from market to market. (To find out more, just call 866-593-7012.)
After the price of the home comes the down payment. Will you be getting a standard mortgage and paying 20% down. Or will you be getting a government-backed mortgage such as an FHA loan and paying only 3.5% but also paying for private mortgage insurance?
And then you’ll need to factor in all those other costs we mentioned above. This will give you a target figure to aim for in your savings program. Again, it’s a good idea to call on your agent’s expertise at this stage.
4. Put Long-Term Savings on Hold
Saving for a new home in will also likely entail making some savings sacrifices in other areas. You can save more for your home if, for example, you channel less money into your retirement fund.
Heres what the financial experts advise: “if you’re young and actively contribute a percentage of your income to a retirement plan, like a 401(k) or IRA, consider temporarily diverting that money to down payment savings. This should only be short term, but it can make a big difference in how quickly you can save for a house, especially if you currently put a sizable chunk of every paycheck into a retirement account.”
5. Automate Your Savings
In saving to buy a new home in , technology is your friend. You can make your savings automatic so that the money is safely out of reach in your savings account before you have a chance to spend it. And if you do it in frequent, small amounts, you’ll hardly feel the pinch.
You could, according to the financial pros, “try an app like Digit, which uses technology to automatically save a daily amount small enough that you won’t notice it or hurt your budget. There’s also Acorns, which rounds up your purchases to the nearest dollar and puts the difference in an investment account.”
Finally, you could also get a second job – if you have enough time and energy left for it after your first job and family and social obligations. A better course, though, is to let your qualified local real estate agent guide you. Find out how our agents can help you save for a new home in . Contact us today at 866-593-7012.