How to Come Up with a Down Payment for a Home
If owning real estate is a goal of yours, you might feel like coming up with the down payment is a struggle. There are many points that can determine how quickly homeownership will become a reality. While a lot of factors will determine how quickly you can come up with a down payment, there are some steps you can take to ensure you reach the goal as soon as possible.
Come Up with a Plan for Existing Debt
Before you can buy a home, you will want to focus on existing debt, such as credit cards or student loans. When you don’t have to make these monthly payments, you will be able to put aside more for a home. When you can put down more upfront, you won’t have such high mortgage payments. If you have to put down less than 20 percent, you may find yourself needing to get private mortgage insurance, which can increase your expenses.
When you have little to no debt, you will be able to buy more. That is because many lenders only allow you to borrow a certain amount, and this is based on your debt-to-income ratio. Paying off your debt will give you a bit more purchasing power. One option for getting rid of student loans faster is to refinance them. This is a great time to refinance those loans, because rising interest rates have made all debt more expensive. When you refinance student loans with NaviRefi, you can end up with a new loan that might be more manageable for you.
Understand the Local Housing Market
While it is a great idea to take control of your financial future, you also need to get some solid numbers on exactly how much you will need to put down initially. Think about the things you want in a home and determine how much that will cost you in the area you are looking to buy in. Especially if you are buying property out of state, this will be unfamiliar to you and research is critical. It’s a good idea to make a list of the things you must have, the things that would be really nice, and the things that you aren’t afraid to compromise in. Perhaps you want a yard, a good neighborhood, or a home with a certain number of bedrooms.
Do a bit of research for the spaces that meet the requirements on your list. You may discover that you need to spend more money or adjust your expectations to find something affordable. Of course, if you expect to be saving for several years, the market could change during that time, or you may end up looking in an entirely different location.
Treat Savings Like Any Other Bill
Tracking spending with a budget can make your savings goal that much easier to attain. Still, it can be hard to discipline yourself enough to put money aside on a regular basis. That is why you may want to treat the goal more like a bill instead. You can create an automatic direct deposit for a portion of each paycheck to go into your home fund. This is called paying yourself first, because the funds go into savings before any other expenses are taken out.
Reduce Spending as Much as Possible
If you want even more room in the budget for your down payment, you may want to reduce current expenses, such as housing costs. If you get a roommate, share a rental home with your buddies, or even live with your parents for a short while, you may be able to drastically reduce expenses. If you move back home, make sure expectations are clear upfront. You may be expected to help out with different chores in exchange for a reduced rent living with them. If you get a roommate, you will want to make sure the rules are clear upfront. Talk about things like having guests over, responsibilities, and personal space. No matter how you save money on housing, make sure the extra funds go directly into a fund for your down payment.