Looking to become a home owner?
Having our own home is one of the most rewarding achievements for most of us, and, clearly, one of the biggest purchases we’ll ever make in a lifetime.
Since most people cannot save all the money needed to pay for a house, getting a mortgage is the only solution at hand.
As soon as you think about a mortgage, you’ll need to prepare for a down payment. This money has to be saved and only then you can start the process of getting your home loan.
Look for an affordable home
The biggest reason most people fail to make their payments and get into serious debt is buying too much of a house.
What is your current family situation? How many children do you plan on having?
Once you’ve answered to these 2 questions it’s easy to just look for a home that would suit your needs.
Of course you might secretly dream of living in a 30 million dollar mansion, but the question is: can you afford such a mansion?
Getting your eyes on an AFFORDABLE home is the most important step towards being able to getting a mortgage you can pay off and a down payment that’s easier to save for.
Figure out your mortgage and down payment
While you can only make some educated guesses, looking at the present real estate market and finding out how much houses similar your dream-house cost is not that difficult.
Say a house your desired neighborhood costs about $200,000.
This means that you should be prepared to pay close to this.
Now let’s see how much you need to save for your down payment.
Say you’re planning to prepare a 25% down payment, this means you’ll need to save $50,000.
Having a savings goal is always better, since you can break it down in monthly payments and see how much you’ll need to save.
Create your down payment saving time-frame.
Coming up with $50,000 in 12 months is not an easy task, so you’ll probably want to do this in 3 or 4 years.
Say you settle for 3 years.
This means that you’ll need to save $1,389 each month and do this for 36 months.
Of course these calculations are not final and probably won’t suit you. Your mortgage could be smaller and your saving time-frame different.
The main idea is to calculate your MONTHLY savings goal, since it’s easier to prepare a budget and stick to it.
Open a savings account
Unless you plan to save money in a jar in your living room, you’ll probably need to open a savings account.
Ideally this should be opened at the same bank that manages your checking account and set up automatic transfers on a monthly basis.
Say you need to save 1400 each month, just set an automatic transfer and never worry about this anymore.
Saving money for your down payment should be as simple and as hassle free as possible, without wasting time visiting your bank, doing manual transfers etc.
Do not invest this money. It might be tempting to do so, since you can earn more investing than just saving money, but you cannot afford to lose it, so just do the old fashioned saving process for a while.
Create a budget and stick to it
Having a clear savings goal helps with planning and budgeting takes this one step further.
Keeping a budget helps you determine your current cost of living, see where you can save more and achieve your goals faster. If you can’t stick to a budget now, when you are just saving for a down payment, with no strings attached, you’ll fail to make your monthly payments, once you signed that mortgage deal.
So stick to it. Understand how you fare under this financial stress and only then go and sign the papers.
Curb your spending
In most households saving money is an issue just because they money spent usually comes very close to the money earned.
Unless you get start a small home business and earn a side income, you’ll need to curb your spending and save more aggressively towards your goal.
All the money you can clear on a monthly basis can go towards your down payment.
Redirect all windfalls
Got a raise? Won a small lottery? Got a cash birthday present?
Save this money to get your down payment even faster. While it might seem tempting to splurge a bit, doing so won’t get you closer to your dream home.
There are many ways you can speed up the process. You can use some of your 401(k) money for your down payment, you can get a personal loan, invest a part of it etc.
Ideally you should be able to SAVE the money. Again, if you cannot diligently save money each month for 3-4 years, until you get your down payment covered, how will you do this for the next 15-30 years?
Use this time as a practice run for when you’ll pay your mortgage. All the great money tactics you develop now will help you to pay off your debt faster and become financially independent as soon as possible.