Whether you’re a first-time home buyer or looking to relocate, deciding to buy a new house is a big step and saving enough money for a down payment can feel impossible. However, there are several key strategies to help save for your next real estate purchase.
Depending on where you’re moving and the market in that area, determining how much you need to save can be tricky. Here are some general guidelines to follow as you begin to prepare for this next season of your life.
The good news is that many lenders no longer require 20% down and depending on your credit score and income, you might be able to get a conventional loan with as little as 3% down. Keep in mind that you may also qualify for a Department of Veterans Affairs (VA) loan with no down payment. It’s important to research loan options for an estimate of how much money you’ll need and find real estate agencies tailored for such a sudden move, like PCS Clarksville TN, before you start saving.
How to save for your next real estate purchase
Once you’ve decided how much you can afford, it’s time to start saving. Here are some tips to consider as you do just that.
1. Nail down a budget
The first step in saving for your next home is by creating a budget that will help you reach your financial goals. You need to know how much income you (and your spouse or partner) are bringing in each month. Then, look at bank and credit card statements to see where most of your money is being spent.
Consider how much you spend on non-essentials, such as restaurants, entertainment, shopping, etc. If you’re overwhelmed by this process, a budgeting app is helpful in automating your savings and controlling your budget. Once you’ve broken down the expenses, determine the areas you can cut back. Set a specific amount to save for your down payment with each paycheck and make your savings a non-negotiable item in your monthly expenses.
2. Put your money into a higher-interest savings account
Ideally, you will be able to choose a savings account with a high interest rate rather than a typical savings or checking account. Examples of these are a high-yield savings or money market accounts. These types of accounts will earn you more money over time. To determine the best option for you, do your research with online or brick-and-mortar banks, including large credit unions.
3. Downsize, if possible
This simply means living below your means and only spending money on the essentials. Put the extra income straight into your savings account. Downsizing could look like selling vehicles, clothes, or other assets to make room for a temporary season of saving and fewer monthly expenses.
4. Reduce your bad habits
We all can fall victim to bad spending habits such as eating out too much or shopping online too often. You don’t realize how much money you can save each month by being diligent in cutting out the unnecessary spending.
Divert what you would normally spend on a latte at the coffee shop toward your down payment fund. Unsubscribe from monthly subscriptions such as TV and music streaming services and try cooking meals instead of ordering out during the week. Over time, these small impulse purchases will add up.
5. Cut down your debt
If your goal is to buy a home, the first thing lenders will look for as a mortgage candidate is your overall debt-to-income ratio. The more debt you have, the less likely they are to approve you for a home loan — or you might end up paying a lot more in interest and having a higher down payment requirement. To avoid this, take this time of saving to cut down as much debt as possible. Determine how much you owe on credit cards and loans and make a plan to reduce it as much as you can.
All in all, if you accumulate these strategies toward saving for your next real estate purchase, you will be in good shape once the time comes to move.