Editors Note: This is a guest post written by Danielle from Zumper.com. In addition to writing for Zumper, Danielle is an advocate of self-improvement and living a financially responsible and knowledgeable lifestyle. When she is not on her computer, she can be found spending time with her husband and two sons.
Saving up to buy a home typically requires time. And a plan. That’s especially true in a market where the home prices continue to rise. It’s imperative now more than ever, to save up a good-sized down payment to put toward your new home.
Being prepared is the best way ensure that you get the house you want. That means knowing what you can afford, how much you need to save for a down payment, and how you’ll make it all happen.
So, what are the best actions to take to save up to buy a house? Let’s take a look.
1. Talk to a Professional
Before starting to look for a house, you may want to talk to a financial advisor or even someone at the bank. That’s because how much you can spend on a home is usually heavily correlated with your annual income.
By talking with someone who can crunch the numbers, you can begin to narrow down how much of a loan you’ll need. That also means you’ll have a better sense of how much you’ll need to save for a down payment. Be sure to talk to more than one bank. That can be the difference between getting $400,000 or $500, 000 which can be a big difference when buying a home.
2. Decide on the Amount of Your Down Payment
The price range of your future home and the amount of your down payment go hand-in-hand. Here’s a quick and easy way to calculate your down payment: a 10% down payment for a $500,000 home is $50,000. 20% would be $100,000. That 10% makes a tremendous difference when it comes to the amount you’re trying to save up.
In fact, that 10% could be the difference between saving for your down payment in one year rather than two. But remember, home values might appreciate during that year so your decision whether or not you continue saving for a down payment is anything but trivial. It may seem better to only do 10% down, but you could end up having to pay more money in the long run.
3. Decide on a Savings Plan
Actually saving money can be, without a doubt, the hardest part of the entire plan. Many people believe that saving for a house means living on scraps and never leaving the apartment again. It doesn’t have to be like that. Check out these great tips to ensure that you save money without dramatically altering your lifestyle.
Regardless, it can be difficult to save money, especially if you are a renter, because sometimes it feels as though all your money is going into keeping a rented roof over your head and keeping that place at a decent temperature, all with enough water and food to sustain you. To cut rent costs, it may mean doing some negotiating or living with a roommate for a year. But, the end result is your own home, and who can put a price on that?
An automatic savings withdrawal from your account during the week you get your paycheck is a great way to save without paying much attention to it. Writing down where your money goes each month is also a great way at looking to see if there is any wiggle room with your withdrawals in order to save more.
4. Do Your Research
It is very possible that the bank you’re currently using isn’t offering you the best interest rate on your savings account. Take a look around at different banks or talk to friends or financial advisors to find what’s best for you.
Whatever way you choose to save money – a savings account, savings bond, or your old piggy bank, avoid high-risk investments where the money can disappear as soon as you put it in there. Protect your principal (and your down payment) by choosing a conservative option, like a savings account.
If you find that even after shuffling money around and eliminating extra costs, you’re still not making enough headway towards your goals, then you may have to look at ways to make some extra cash.
If you still aren’t sure where to start, talk it over with someone. Maybe you have a parent who has been there before or a partner who is financially savvy. So, keep photos of your dream home at the ready, because if you have the patience and the will, you will buy a home thanks to your well thought out plan.