Post Menu and Details.
- What Is a Down Payment?
- How Much Should Be Saved For The Down Payment?
- Are There Hidden Cost That I Should Know About?
- How Do I Save Money For My New House Purchase?
- When Is The Best Time To Purchase A New House?
- Choosing The Right House & The Right Offer
- Our Final Thoughts
Reading time: ~6 minutes
Like your college graduation ceremony or getting your first real job, buying your first house is one of life’s most defining moments. It requires a lot of planning and preparation for the process to run smoothly. Before taking the plunge, it is essential to consider all the steps to buy a new house. For example, saving up for your purchase is one of the most critical steps. Before you place an offer on a property, it is essential to save up to have your down payment ready when you find your dream house.
What Is a Down Payment?
Most of us have to pay an initial deposit and a monthly amount as a mortgage payment. To start, what you’ll want to focus on saving for is the initial deposit. Putting down a large deposit for your house can substantially decrease the amount you’ll pay each month.
You will bring your down payment in the form of cash or check during the closing.
That goes directly towards the cost of the house. The mortgage company finances The rest of the amount.
The reason house buyers need to supply a down payment is to keep them financially invested in the property. That is a form of insurance for the mortgage lender that you are serious about the property and maintaining homeownership. The more you can save for your down payment, the better you will look in the eyes of lenders. Also, you will be able to reduce the size of your monthly payments and also shorten the length of your house loan.
How Much Should Be Saved For The Down Payment?
No one likes debt, and the more you can put down at the start of your purchase, the less general obligation you will have. Understanding just how much to pay down on the house will depend on a few factors.
Start by calculating how much you can realistically pay monthly towards your mortgage without straining your finances. Generally, your mortgage should only be 25% or less of your total monthly wages. Spending much more than that will create a strain and leave you in the wrong position in the case of an emergency.
Your monthly mortgage payment calculation should also include any fees, taxes, or insurance. To find out the best payment for your budget, multiply your household income by 0.25. The answer is the general payment amount that would be suitable for your income range.
Your interest rate and the term of your loan will also play a role in your overall cost. A 15 year fixed rate loan is the best option for most homeowners, and it will also help you save thousands of dollars over the life of your loan. In general, it is a good idea to put down at least 10% of the total loan amount, or if you can, place a 15% or 20% down payment. There are many online mortgage calculators that you can use to play with the numbers to figure out the ideal amount for your situation. The more you put down upfront, the lower your payments will be overall. Higher down payments will also help you secure lower interest rates and even avoid PMI in most cases.
Are There Hidden Cost That I Should Know About?
Lenders may be helping you buy the house of your dreams, but they are making money in the process. In addition to your down payment, you should expect additional fees to pay. It is important to set money aside in your budget to cover this cost so you won’t get caught with a shorthand at the closing.
PMI or Private Mortgage Insurance is an additional cost added to each monthly mortgage payment. If you have placed a down payment that is less than 20% of the purchase price, you can expect to pay an additional $50 a month for every $100k borrowed. If you paid 20% or more for your down payment, you won’t be charged. The lender also charges the buyer for inspection and appraisal fees incurred during the loan approval process. Plan to spend between $250 and $400 on each of these fees. There are also fees charged by the title company during the closing. These cover a few different things and is usually range from $3,000 to $10,000, depending on the total cost of the house.
Don’t forget also about house renovation work costs, which you most probably would need to do right after purchasing a house.
How Do I Save Money For My New House Purchase?
Open a savings account specifically for your future house purchase. There is no limit to when you can start saving money or how much you have to keep. You can start saving for a house as soon as you get out of college or even when you graduate from high school. Even putting aside $50 to $100 a month for several years will allow you to grow a nest egg that will facilitate your new house purchase.
If you already have a timeline for your purchase in mind, you can boost your savings plan with a few shortcuts. Start by cutting out any unnecessary spending. Anything that isn’t essential to your everyday life or you don’t need can be better spent on the savings account for your new house.
Another way to save money is to double and triple check prices on everything. Don’t buy the first thing you see because chances are you can get it cheaper somewhere else. Bargain hunting and even couponing can considerably increase your monthly savings. Consider setting up a direct deposit or automatic transfer each month. Time the transfer to coincide with when you usually get your paycheck. Set aside 10% each month towards your savings, and before you know it, you will have a nice lump sum ready for your new house purchase.
Another good tip is to use one of the money-saving apps, which helps you to track your expenses and set monthly goals.
When Is The Best Time To Purchase A New House?
When you decide on the neighborhood where you want to buy a house, you’ll want to check the market periodically. That will allow you to analyze the prices each month and determine when it will be the right time to offer. Some seasons are better for buyers than others, so keep that in mind when considering a purchase.
You should start paying down any old debts and building your savings fund before buying a house. Once you have a few months’’ expenses set aside, start building your new house savings fund. Paying off your old debts while saving for your new house will reduce your liability and put you in a better position when it comes time to secure a mortgage.
Once you have your past debts in hand, and you have at least 70% of your anticipated down payment saved up, then you can start looking for a house. Make sure to keep saving in the same way during your new house search. The more you put down, the lower your monthly payments will be. Always remember that there is no limit to how much you can pay upfront when buying a new house.
Choosing The Right House & The Right Offer
Buying your first house is one of the most significant investments a person can make. It is a decision that you want to think long and hard about before making a decision. If you’re looking at buying a house soon, here are some tips you should follow to help you find the place you’ll love.
Pick a local agent who knows the area and who understands your needs. Plus, they will see the site that you are looking at and give you many great reasons (sometimes too many!) to live there. Since they are local, you can also get advice from friends on selecting an agent. It helps to get a referral from a friend or loved one. That will let you know that they are the right agent and not just trying to get your money.
Think about your commute. That may seem counterintuitive, but selecting your house location should also depend on where you commute to each day. Do you want to spend 5 minutes in the car or 90 minutes?
Add up all the commuting time you would pay in a week, and that’s less time you get to spend at the house with your family. Just something to keep in mind! Location is everything.
Factor in all the things you want near your house. What do you want nearby? Grocery stores, schools, parks, sports stadiums, shopping malls, outdoor areas? These are excellent questions to ask yourself and bring up to your agent. Be upfront with what you want, and they will show you your options.
Our Final Thoughts
In conclusion, for you to save enough money for your new house, you’ll have to cut back on spending, do a little bargain hunting, and encourage yourself to invest enough money each month to reach your goal and buy your first house. Most of all, be upfront and open about what you want. Your agent is there to help you, and they can’t help you without some help from you. Good communication is vital!