How to save for a downpayment for your home
Finance

How to Save for a Downpayment on a House

In this video, I’m going to show you how to save for a down payment on a house. A house is one of the best investments you can make in terms of building wealth. If you are considering purchasing a house you’ll want to consider a few things. During my time as a Loan Processor at a mortgage company in Detroit, I learned so much about the importance of saving money for a downpayment and the additional expenses that go into purchasing a house. So without further ado, let’s discuss this.

Consider your dream home

This could be a single-family residence or a condo. Whatever the type of property you would consider purchasing, you’ll want to look at photos of different types of homes and then hone done of the property type either a single-family residence or a condo. Consider things like how many bedrooms do you want, how many bathrooms do you want, and other factors like a garage or basement.

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Consider the location

Do you want to be close to work? Or close to family? Close to shopping? Close to a school? All of these things need to be considered when you decide on your home purchase. You’ll find that most of the times, areas closer to the downtown area are more expensive and the farther you are away from large shopping areas will be less expensive.

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Consider the Price

I remember planning for my wedding and I became obsessed with planning my dream wedding. I remember constantly pinning my favorite images of the wedding gowns and centerpieces before I realized that some things were out of my price range. Remember that purchasing a house is a major investment and that the cost of having a place of your own will take time and patience. Once you start to look for the property type and hone in the location, you’ll need to settle in and figure out what your budget or price range of homes that you’ll be looking at. This will vary on the location you choose and the property type. If you choose a more recently updated home, closer to a large downtown area, or shopping you’ll again notice that these prices will much higher than farther away from the downtown area.

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Review your budget and income

Once you review your budget and income, you can then determine the average selling price for your home. A downpayment is essentially a large deposit towards your purchase of a home. This is calculated based on the purchase price of the home and your mortgage qualifications. Let’s say that a home is selling for $100,000, your downpayment can range between 3.5 – 20%, depending on your cash that you have on hand and the loan terms. The higher your down payment, the less you will have finances and in the long run the less money you’ll put towards your interest rate.

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Get Prequalified

If you are trying to purchase a home quickly, you’ll need to get prequalified for a loan. Depending on your history with credit, you can pre-qualify for different terms on a mortgage. Your mortgage is the amount that will be financed towards the overall purchase of a house. So if you are prequalified for a loan of $150,000, and you are interested in purchasing a home selling for $100,000 you won’t need to use the total amount that you prequalified for. A mortgage banker can provide you with additional information in terms of your interest rate, your rate term (or length of the loan), and any additional fees or expenses that are associated with your loan.

Put in an offer

After you are prequalified for a loan, you’ll want to look through to see what types of homes that you are interested in purchasing and you can work with a real estate agent to put an offer on a home. Let’s go back to our initial example of $100,000. If a home is $100,000 and you put in an offer at the asking price of $100,000 and your down payment, which will vary based on the loan program, is 3.5%, your downpayment would be $3,500. If you wanted to put down a larger down payment of 10%, the down payment would be $10,000. If your downpayment was 20% of $100,000 that would be $20,000. Most people generally down put that much down on a property, however generally speaking some people do consider this option if they want to avoid PMI or private mortgage insurance which is generally an additional expense on a home mortgage if you pay less than 20% down.

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CALCULATE YOUR nET inCOME

Saving up for the down payment of the house can seem daunting because you might be thinking, who has an extra $20,000 to throw down on a house. But the reality is that you can save now for your future and it starts by making a plan. Take your average take-home pay, multiply this by 12 months and this will be an average idea of what you can expect you’ll be making. You’ll then want to review your total expected costs of living and see what amount is left over to save.

iNCREASE sAVINGS

Each month, place an amount towards the overall cost of your home into a separate checking or savings account. I recommend Ally or Sofi Money. Both of those accounts are generally low cost or fees and have easy to use mobile apps to help you see how much you have saved.

cut costs

Cut down on expenses you don’t need so that you can enjoy and feel satisfied with your home purchase. Spend time thinking of fun things to do that don’t cost lots of money. Watching a Netflix movie, going for a bike ride, or going to a local museum generally, don’t cost very much and doing fun things now can help you stay on track with your goals.

tRACK YOUR PROGRESS

Have a tracking chart for the amount of money that you’ve saved. When you save the extra dollar amounts you want, make sure to celebrate your goal even if it’s a little snack from the dollar tree or budgeting extra money for a trip to the beach or mall. I love Debt Free Charts. These charts are a great way to look at your spending habits and see how your extra money helps you pay down debt and also save up for large expenses like a house.

Conclusion, these are all great ways to save money but what you really want to do is get a professional involved. Don’t try to save up on your own without consulting someone for help. If this resonated with you, head on over to my website at www.herdesignedlife.org/services and set up a free consultation to ask me questions about how you can save for your home purchase.

How to save for a downpayment for a house