One of the crucial steps to buying a home is saving for your downpayment, which may come to around 5 to 20% of the home value. Banks or other lending institutions require you to shell out this amount to reduce their risk of financing the remaining cost of the home.
In addition to putting a lot of discipline, you must carefully consider the different options available and decide the best way to save money to raise the amount you need. We have curated a list of expert tips that will explain the different ways you can put money aside for your downpayment,
How To Save For Your Downpayment
Here are some steps you can take to steadily build your downpayment fund:
1. Create a budget
The first step is to determine how much amount you need to save. Look at the homes in your target area and consider the prices to work out your budget for your homeownership dreams. After getting an idea of the amount you plan to spend on your home purchase, consider your different loan options. That will help you understand the down payment you will need. Each loan will have a different downpayment requirement. For example, for a fixed-rate conventional loan, you may have to pay only 3% as a down payment. Remember to consider closing costs that are a significant expense while finalizing your saving goal.
2. Pay off your debts
If you have debts for which you pay high interest, that could cut down your capacity to pay for your new home. It would be advisable to pay off your high-interest debts before you start saving for your down payment. With this strategy, you can save more from your existing income. Moreover, paying debt increases your credit score, which is a vital factor in the home-buying process and helps you get better loan terms. Reducing your debt lowers your debt-to-income ratio. Most lenders look at your monthly debt payments while evaluating you as a borrower
3. Increase your income
Consider looking at ways to boost your income so that you will have enough money to allocate for your downpayment. There are many prudent ways to increase your income, including working overtime or taking on a second job. You may also try to negotiate for a pay raise at your current job.
4. Reduce unnecessary spending
Apart from finding a suitable way to increase your income, you need to cut down on unnecessary expenditures to boost your savings. Identify the areas where you could reduce expenses, like vacations or meals out. Even small changes in your expenses can add to huge savings, though they may appear insignificant at first.
5. Automate your savings
If you don’t want to be troubled with setting aside money every month, you can arrange automated transfers. Set it with your bank and request them to automate a regularly scheduled withdrawal to your savings account. Alternatively, you can authorize your employer to deposit a fixed amount into your savings every month. Remember to note down when your automated withdrawals are to take place. Otherwise, you may find yourself short on funds around the time your transfer is scheduled.
6. Understand about first-time home buyer programs
If you are buying a house for the first time, explore common programs specially made for first-time home buyers that are fixed by states, counties, and local governments. In the US, several states offer special rates and conditions to assist first-time home buyers in making home purchases easier. Since the incentives offered vary as per the state, ensure to check the program details before you open an account.
7. Look for products that offer greater interest rates
While saving for your downpayment, it is better to park your savings in accounts that will give you better returns for your investment. For example, there are high-yield savings accounts that offer significantly higher interest than standard savings accounts. Certificate of Deposit (CD) is another good saving option. These are fixed-rate savings products with set terms that offer the advantage of a fixed return till your maturity date arrives. Remember to keep in mind your timeline since you don’t want your money to be stuck in an 18-month CD when you need it to buy your home in the same year.
Conclusion
It is best to research carefully to determine where best to invest your money and choose an option that aligns with your current financial situation and priorities.
If you find it challenging to decide which option is right for you, don’t hesitate to approach an experienced financial expert for guidance. At Bond Street, our seasoned mortgage professionals will carefully analyze your current income and expenses and your risk appetite to zero down on the best mortgage options that offer the most favorable down payment terms and monthly payment options.
We will guide you through the best savings strategy that aligns with your home-buying ambitions and gives you the best returns for your investment.
Contact Bond Street’s experts for personalized guidance and seamless financial advice today!
