Saving money for a house with an average paycheck seems like a herculean task.
Buying a house in this era is still a dream for many individuals. The cost of real estate properties is mounting with each passing day making it difficult for a common man to even think of making this big purchase.
No doubt there are so many funding options available nowadays to buy properties. However, you have to put a certain amount of money against its down payment. People who are unable to save money often take out loans for bad credit with no guarantor and use this fund to make the down payment.
Residential properties come with skyrocketing price tags. This makes it impossible for many people to move forward with their purchasing idea. But with a sturdy financial plan and disciplined approach, you can easily save up enough money for a house down payment.
This blog will enlighten you with some tricks that are easy to follow that will help you set money aside for a down payment to purchase your dream house.
How much money do you need to save for a house down payment?
Having money is necessary for those who are looking to purchase a house. Some people may know the amount needed for the down payment, but some might have no clue.
Many people drop the idea of purchasing a house as they feel that arranging a 20% down payment is unaffordable. However, some take 15-minute loans from a direct lender to use this money to put against the down payment.But many financiers don’t ask for this percentage of money.
3% or even less
Depending on the income and credit score of the person, they can get a conventional mortgage with a 3% down payment. If you successfully qualify for USDA (US Department of Agriculture) or VA (Department of Veterans Affairs). You can easily purchase a house even with a zero down payment.
However, if don’t qualify for either of them, then don’t think you are out of luck. Some states offer help to first-time buyers. You can ask for assistance near your locality to check whether you meet the required qualification.
20% is a myth
Many people believe that they are supposed to make a 20% down payment against purchasing a house. But it is not true. This myth came from PMI (private mortgage insurance) rule that many mortgage investors and lenders have.
If you can pay less than 20%, you will be required to pay for PMI. This insurance guards the lender if you default on the loan. Moreover, paying a 20% down payment will help you save money in the long run, but it is not a mandatory rule to buy a house.
If you have just begun your home purchasing voyage, then knowing how much you can afford is a good step. Once you figure out this factor, you will get a realistic amount you need for your down payment.
Tips to save money for a house down payment and lower the credit burden
By reaching this point, you might have figured out the amount of money you need to save for a house. Now it’s time to start saving it.
If you have already started saving then you can use the below strategies to increase the amount to have a good percentage of down payment.
The primary step involved in the process of saving is budgeting. If you cannot track where your money goes every month, then it is impossible to set aside cash for the down payment.
Budgeting helps you know what amount of money you bring every month. This figure should also include your spouse’s income if they want to contribute towards a house down payment.
Take out your bank statement and payments of all your credit cards. Check areas you are primarily spending your money.
Jot down how much money you spend on essentials like utilities, food, rent, mortgage, etc. Check what figure you are spending on unessential like restaurants, entertainment, etc.
You need to categorize your spending into necessities, and non-essential, then look wherever you can cut back. Set a budget for each of the categories and consider sticking to them.
You can also use a budgeting app that is available in bulk online. These apps can help you automate the whole process. It will not make any mistakes you might make while calculating your expenditures.
Downsizing is among the fastest ways to save money for the down payment. A downsizing process helps you minimize your expenses and live within your means while saving money. When you practice this, you follow the rule of spending money on your needs only.
You spend money on necessities and divert the maximum amount of money towards your savings account.
Moving to an inexpensive or smaller apartment, selling unneeded things, or shifting to an affordable locality are fantastic techniques to practice downsizing. Many people practice this process when they plan to make a big purchase.
Working on behaviour
If you reduce or wholly cut a bad spending habit, then you can put aside a significant percentage of your dollars from your paycheck. Consider eliminating the following bad habit to divert your money towards your savings.
- Impulsive purchase: If you are prone to impulse buying online or in person. You should abandonsuch habits. Consider unsubscribing from emails that persuade you to buy things randomly.
- Going out: Eating out feels great. Nobody denies it. But it is not suitable for your wallet. Cook your meals at home instead of ordering them from a restaurant.
- Monetize assets
Buying a house is not an instant decision. You must start at least 2-3 years ahead of the time to save for your down payment. But if you think you cannot wait for these many years, then you should explore your assets and consider monetizing them to pay your down payment.
For example, if you have fixed deposits, you can either liquidate them or borrow money against them. You can also borrow against policies like life insurance, depending on the terms of the insurance company. Also, you can withdraw some money from your EPF (employee provident fund).
Try avoiding credit cards to arrange for the down payment as it has a high-interest rate. These can create a heavy financial burden in the long run.
The amount of down payment depends on the property you select. It can go around a few pounds or thousands. It is always recommended to do some research about the property prices around the location you are planning to buy a house.
The research will help you get a good idea about your preferences that fall under your budget or not. You can move ahead with your plan accordingly.
Start saving money at the earliest. The sooner you start a large amount of money you will be able to save for the down payment. Understand your money and manage it well. With the right approach and a few adjustments, you will be able to purchase the house this year.