Purchasing a home is one of the most significant financial moves to make. And, it can be more challenging when it’s your first home purchase and you need to use a home loan.
Mortgages or loans require you to make a down payment; a certain percentage of the loan you are applying for. So how can you save up money to make a down payment? You’ll find out here.
#1. Set a Budget
This is the first step you need to take.
Purchasing a home using a home loan requires you to pay a down payment. A down payment means paying a specific sum from the total cost of the home.
So, you should start saving your down payment; probably months or years before the time of your home purchase. A budget helps you know your income and expenditure.
This further helps you know how to spend your income; what you can cut down on so that you can save up for your down payment. Also, your budget must contain a specific amount to set aside for savings.
#2. Cut Down on Some Expenses
This is one of the quickest ways to save more money toward a down payment. Go through your list of expenditures to know what takes the bulk of your money. Most times these things are necessary expenses like food, shelter, and the likes.
However, you can still make some adjustments to them to reduce the much you spend on them. Taking that inconvenience for a while will yield a profitable result in the long run.
So, you may need to move into a smaller apartment, sell one of your vehicles, or more.
#3. Increase Your Savings with Your “Extras”
This is another great way to save money for your home purchase. One of the ways to increase your savings is to save “extra” money. You can decide to add any windfalls or money gifts you may receive to your savings for the down payment.
So, every bonus at work and gifted funds from loved ones is not to be squandered. These little contributions may seem little but adding them over years will about to a significant sum.
#4. Pay Off Debt
You may not get a home loan easily if you have an outstanding debt to fix. Your lender understands that debt might hinder you from meeting up with your repayment.
So, you need to reduce your debt as much as possible before you go for a home loan, better still, clear off the debt.
You can refinance your student loans with high-interest rates to reduce your payments. You can reduce your student loan payments with interest rates as low at 2.5% with ELFI. LOWER YOUR STUDENT LOAN PAYMENTS HERE
For high-interest credit card debt, pay off as much as you can or transfer your balance to a low-interest card.
#5. Get a Side Job
Getting a side job can boost your income so that you can save up for your down payment quickly.
You can take up a delivery job, drive for a rideshare service, walk dogs, and many more. Technology has also made tons of freelancing opportunities available, you can take up one to get extra cash.
Where is the right place to save for your down payment?
Financial experts recommend saving for your down payment with a high-yield savings account or money market account. These two savings accounts offer higher interest rates than a checking or traditional savings account. This means that these accounts don’t just keep your money safe, they also help it grow.
What you need to get a mortgage
To secure a home loan, your credit score is one of the major things your lender considers. The minimum credit score for a conventional loan like a home loan is 620 or more.
So, if your credit score is less than that you should work on improving it. Experts advise that you clean up your credit report to boost your credit score before applying for a mortgage.
Hopefully, you’ve discovered the ways to save for your first home purchase. You can start acting on them right away.