Buying a home is probably the most significant investment you will have to make in your life. Forbes lists house purchases, along with education and raising children, among the expenses that take 50% of a person’s lifetime earnings.
Buying a home comes with a lot of benefits. However, how can you go about owning a home? Should you take a mortgage or save money to buy a home?
With the robust financial system in the country, most buyers prefer taking a mortgage, provided they can take care of the payments, deposit, and other homeownership costs.
Even if you are approved for a mortgage, you still need extra money to pay the deposit and other closing expenses. Here are a few actionable ideas that can help you save enough money to buy that house you’ve been dreaming about.
1. Know How Much You Want to Spend
Determine how much you can pay for a house based on your current earnings. Offering a 20 percent or higher deposit will help you get a better deal with your mortgage provider, and reduce the debt burden in the long run. For instance, you will need to save at least $3,000 a month for a 3-year period if your target deposit amount is $100,000 or thereabouts.
Your current financial situation, rather than expected future income, should guide you on the kind of house to go for. Ideally, you want to avoid purchasing a home that will take over 25% of your monthly earnings in mortgage payments.
2. Save for the Deposit
Saving money for a deposit requires financial discipline and a bit of patience. Here is how you can keep yourself grounded to save for the deposit:
- Make an automated savings plan with the bank or financial institution that handles your monthly earnings.
- Avoid risky investments, such as stocks and new business ventures. A savings account will be enough when you are saving for a deposit.
- Cut back on unnecessary investments and expenses such as vacations, car upgrades, and shopping.
- Take a second job or look for additional sources of income and channel the extra earnings to the savings account.
- Move to a smaller, cheaper apartment if you are currently renting. After all, you will be in your own house in a few months or years, depending on your savings plan.
- Consider selling some assets, such as that extra vehicle, painting, or jewelry, and send those funds directly to the savings account.
- Take advantage of bonuses and other windfalls to boost your savings.
- This might be the time to ask for a raise if you were lined up for one.
- Be disciplined. Avoid unnecessary trips or expenses that might take you off the track. Let the dream of owning your own house motivate you to make sacrifices.
- Set up an emergency fund to take care of expenses that may crop up when you are trying to save money for a house.
3. Take Care of Existing Debt First
Paying off huge debts might be difficult for some people, especially those with student loans. However, it is important to get rid of existing debt before you apply for a mortgage. This will not only help you concentrate on saving but also get you a better mortgage deal with your lender.
Cut back on credit card spending and avoid short term loans when saving for a house.
4. Ask for Help When You Need it
Saving for a house is not a walk in the park. Therefore, you shouldn’t be ashamed of asking for a little help if you can. This is especially true for young people trying to start life and have parents that can chip in. Instead of gifts, you could request your loved ones to give cash gifts that will be channeled to your savings account.
5. Get Pre-Approved For a Mortgage
After deciding to buy a house and starting to save, approach a lender for mortgage pre-approval. Discuss your plans with the lender and see what financing deals you may qualify for. With a mortgage pre-approval, you will have an idea of how much you need to save for the house. Apart from this, having pre-approval can help you get a house fast when you approach real estate agents.
6. Include Other Costs in Your Saving Plans
First-time homebuyers often fail to plan for other expenses that come with buying a house. Examples of these costs include appraisal fees, mortgage insurance, closing costs, legal fees, among others. As you save to buy your house, get an estimate of these hidden costs, and factor them into your budget.
Saving for a house can be a daunting task for first-time buyers. However, it is a worthwhile experience. A lot of discipline, careful planning, and a bit of sweat will get you there. All the best as you save for your dream home!