Do you want to buy a home but lack of a down payment is holding you back?
If so, you are not alone. A majority of would be homeowners struggle with saving for their down payment. The good news is that there are a few simple ways you can boost your savings. By making some tweaks to your spending and changing your savings habits you can build a little nest egg quicker than you think. With an increase in reduced down payment loan programs you can fulfill your goal of homeownership in just a few short months. Here are four tips to help save for a down payment.
Have a game plan. While there are a few advantages with renting nothing beats homeownership. Every month you pay your mortgage you are building equity. On top of that there are many tax breaks you can only take advantage of as a homeowner. The first step towards owning a home is coming up with a game plan. Start by assessing how much you will need to purchase. Generally speaking the closing costs for a home purchase are anywhere from two to five percent of the purchase price. This is in addition to the three percent minimum down payment needed. Your purchase price should be based on what you can comfortably afford every month. Reach out to a local bank or mortgage broker and ask if they can run some numbers without pulling your credit report. Once you know your purchase price range your goal should be to save at least five percent of that number.
Financial evaluation. In order to know where you can save you first have to take some financial inventory. This isn’t always the easiest thing to do but it is absolutely necessary. As simple as it sounds write down every expense you have for the month. A good exercise if you can is to use one credit or debit card for every expense the entire month. This will give you a real list of where your money goes. If you can’t do that just get a printout of your last two months checking account. Look and see where every dime went. It can be an eye opening experience seeing how much you spend on coffee, eating out, gym memberships you don’t use and various other expenses. If you really want to own a home you may need to make some sacrifices. Skipping the pricy coffee may not seem like much but it could add up to as much as $100 a month. Doing this with two other accounts can knock off another $200 or so. In just six months you can have close to $2000 saved up just by making some subtle spending changes.
Tax return.In theory your tax return should be as close to even as possible every year. However many taxpayers overpay during the year and receive a refund. If you received a refund last year what did you do with it? Did you take a nice vacation, buy some new clothes or treat your friends to a fancy dinner? Whatever you did with it last year should be completely different if you are saving for a home. You should take at least 80% of your refund and put it immediately into a savings account. Yes, this is boring but it will give your goal of homeownership a big boost. The good part is that once you own your home there are additional tax breaks that will give you a bigger refund next year.
Forced savings. Regardless of your income there is always a percentage of your check that is essentially wasted. Instead of throwing your hard earned money away you need to put it into savings. Every time you get paid you should take 10-20% off the top and put it into savings. This may cause you to spend a few weekend nights in or to give up a few channels on your cable package but it will be worth it. By doing this every paycheck without thinking it will eventually become a habit.
Saving for a down payment may not happen overnight but as the saying goes you need to start somewhere. Owning a home will afford you many financial and emotional benefits that renting simply cannot offer. If you want to own a home start saving for your down payment today.