Saving for a down payment is perhaps the biggest hurdle that a potential first-time homebuyer faces. The general recommendation to save 20 percent of the purchase price of the home you want to buy is a daunting task.
Fortunately, you may not need as much money as you thought. For qualifying buyers, lenders offer mortgage loans for those who have as little as 2.5 percent down. Careful planning can allow you to save up this amount and replace your monthly rent payment with a home loan.
Budgeting is a sound method for saving up money for your down payment. Start by tracking all of your payments for at least four weeks, from big payments like your monthly rent and car loan to small ones like library fines and snacks from the vending machine. This gives you a picture of where you are spending your money.
When you know where you’re money’s going, it’s often easy to see places where you can cut back on your expenses. Perhaps you could start bringing lunch to work rather than eating out or going out with friends every other Friday instead of every Friday. Then, put the money you would have spent on those items into a savings account for your future mortgage.
Another strategy to save money for your home loan is to “pay yourself first.” When you get your paycheck, immediately transfer a certain percentage into your savings account. Many employers can conveniently set this up to automatically happen. This is usually a better technique than waiting to see how much money you have at the end of the month. When your money is not easily accessible by debit card, you’re less likely to spend it.
Many areas have grant funds available to help low- and mid-income first-time homebuyers with down payment and closing costs. These programs typically work by matching funds you save yourself and requiring you to attend a home-buying seminar that teaches budgeting basics, steps in the home-buying process and how to avoid foreclosure in the future. Check with a local realtor to see if there is a program in your area.
Saving up the money you need to buy a house can seem like an insurmountable task, but when you save at least a little bit every month, that amount will grow to be enough to get you started.