The new year is nearly upon us! You might already be making some goals or resolutions for 2019. Maybe one of those includes purchasing your first home, which means you’ll need a down payment.
When buying a property, it’s important to put down as much cash as you can at closing to keep your monthly payments affordable. Most mortgage lenders require a down payment of at least 3 percent of the home’s purchase price, but if you can put down at least 20 percent, you avoid paying for private mortgage insurance on top of your regular payment.
This may seem like a pretty hefty number, but it’s not out of reach. Here are six ways you can start saving for a down payment on your home today!
Determine How Much House You Can Actually Afford
First, you need to figure out what monthly payment amount you can reasonably afford on your current salary. As a general rule, mortgage lenders say your total housing payment (mortgage plus hazard insurance, property taxes, PMI and HOA dues) should not exceed 32 percent of your gross income (before they take out your taxes) if you want to play it safe. That means, a buyer whose annual gross salary is $75,000 should not pay more than $2000 each month toward their housing costs.
Using a mortgage calculator, you can input the information you know — home value, loan term, interest rate, property taxes, and so forth — and determine how much you need for your down payment in order to hit that magic number. Once you know exactly how much you need to save, you’re ready to make some concrete plans.
Automatically Transfer a Set Amount of Cash into a Savings Account
According to BB&T, this is the most popular way to save, and probably the easiest! If your extra cash is always burning a hole in your pocket, have it deposited directly into a savings account you won’t be tempted to touch. Before you know it, you’ll have a nice little nest egg, especially if the bank gives you a competitive interest rate.
“Bank Your Windfalls”
Don’t you love it when unexpected cash seems to fall from the sky? Tax returns, gifts, bonuses — Money Under 30 calls these “windfalls.” You might be tempted to blow right through them, but you’re better off depositing them into your down payment savings account. It’ll make the process of saving such a large sum of money easier and faster!
Cut Back on Spending and Add Income
Eliminating unnecessary expenses is the least fun way to save, but it can make a huge difference. Look at your spending habits and see where you can trim some fat. Forbes suggests getting rid of the gym membership, cutting the cable and shopping for new car insurance plans. They also recommend skipping your annual vacations and finding a cheaper place to rent while you save for the down payment of your ultimate landing spot — a home!
If you’ve eliminated all unnecessary spending from your budget but still want to save more, consider adding supplemental income by getting a second job. You might be able to pick up some freelancing, a work-from-home opportunity, or some hours on the nights and weekends at a restaurant or theater. It’s a sacrifice, but it will pay off in the end.
Consider Down Payment Assistance Programs
Don’t forget to utilize programs through the Federal Housing Administration, the US Department of Agriculture Rural Housing Service, the Veterans Administration and other federal and local government organizations. These programs offer grants and incentives to qualifying home buyers which can drastically lower your down payment and save you money in other ways. Check out this list from Bankrate to see if you might qualify for one.
Negotiate with the Seller
Once you’ve got that cash saved, it’s time to hire a real estate agent and start looking for your home! At Value Nation, we’re not afraid to negotiate on behalf of our buyers. We will advocate for a fair sales price and other concessions to help you afford the home of your dreams.
We also give a commission rebate to each of our buyers at the time of closing. This is a large portion of the money we would normally receive for representing you in the real estate transaction, but we like to give it back to our buyers to put towards closing costs, etc. Value Nation owner Andy Cooper recently represented the couple pictured above, and they were able to cover all their closing costs AND prepay a year of HOA dues with their rebate. Pretty cool!
Will 2019 be the year you buy your first home? We hope so! And, we hope you’ll call us when you’re ready to shop around. We’d love to help you find the perfect home for you and save you lots of money in the process.