When it’s time to buy your first home, there’s a lot to consider. The biggest factor, as you begin, is your mortgage down payment: how will you put down the money needed to purchase your first home? You’ll want to approach each step in the home-buying process one part at a time, and this is no different. To solidify your plan to buy a home, follow these five steps to save money for your first home down payment, and you’ll be fully prepared:
Figure out how much you need to save each month. Typically, you’ll find that you need to put down 20% (or around that number) of the property’s total price before you buy a house. Think carefully about this first: what requirements do you have in a house, size-wise, amenity-wise, location-wise? Assess your needs, and then assess the average costs of houses that meet these needs in your area. Be sure to continue assessing until you can come to terms with the down payment you’ll need to produce for the type of house you’ll be buying. Once you have a firm number in mind, you can begin. Now, it’s time to save! You’ll want to decide when you need to buy in order to figure out how much to save each month to reach your goal. Setting your timeline and your budget this way are integral first steps that will guide you throughout this process.
Automate your savings payments. Once you determine how much you’ll need to set aside each month, make it easy on yourself: set up a recurring transfer with your bank to have that amount automatically moved to your savings account. If you want to skip even that step, you could consider speaking to your payroll department to have a set amount of your paycheck automatically deposited to your savings account. This way you can ensure that you stay on-schedule without extra effort.
Create an account solely for your down-payment: Some people find it difficult to leave their banks accounts alone, and to avoid touching money that should be set aside for big purchases (like a house). Whether or not that’s you, you can make saving your money a no-brainer by creating a completely new account just for this big purchase. When you automate your payments, they can be deposited directly here, and you’ll have no doubts about the status of your ability to purchase a house, and how your savings progress is going along the way.
Pay off debt. If you have any kind of debt, you’ll want to pay it down before applying for a mortgage. Fiscally, it’s just smart to rid yourself of these expenses and interest payments before you add a new one to your list. As far as lenders are concerned, it’s key, especially if you have a high level of debt. If you have more than one payment to pay off, start with the one with the highest interest rate–getting this out of the way will save you the most money in the long run. Then move down your list of interest-rate levels of payments.
Find where you can cut other costs. In addition to knowing your timeline and budget, there are some smaller (yet effective) ways to save money on a regular basis while you prepare to make this large purchase. Consider the following, and each time, with the money you save, move it into your house savings account. You’ll find that your deposit fund will get larger quickly when you’re making the effort:
- Skip the vacations. Instead of large trips, aim for “Staycations” this year, or go small. Vacations, and even flights, can take a chunk of money from your account.
- Downsize your retirement payment. For a temporary amount of time, set aside a smaller percentage towards your 401K. You can move the money saved into your house fund, and you’ll find that later down the line, ownership of the house will provide a solid return on that investment in terms of assets for you.
- Cut indulgences. When you’re consistent, this will truly make a difference in your take-home savings amount. Make coffee at home instead of purchasing a $5 latte each morning. Bring your lunches to work rather than make impulse purchases. Consider finding lower-cost haircuts, gym memberships, transit methods, and more. The savings are small, but they add up.
We have all the home purchasing details and tips you need. For more information on the home-buying process and the Denver real estate market, contact me today.