How much money should I save before buying a house: Income vs Expense
Most people acknowledge that a home is among the largest single purchases you’ll ever make during your lifetime. With skyrocketing real estate prices and stagnating wages, owning your own home is becoming a daunting goal. However, future homeowners often overestimate the amount of cash that’s needed to purchase their dream home.
If you are a first-time home buyer, there are a few loan options that require no down payment and others that require 3.5% of the purchase price or less! Many people believe that 20% down is required and that is preventing them from purchasing sooner. But, that is simply not true. In addition to many low-down payment loan options, there are also programs that allow for grants to be used for down payments and the amount can range from between $7000 and $15,000 (depending on the area and program). So, don’t let a down payment prevent you from trying to get prequalified, contact The Cain Mortgage Team today to see what programs you qualify for!
Although there are Grant Programs available to help with a down payment, it is always a good idea to save for a down payment and extra savings. The more money you have in your bank account, the higher the likelihood of approval with a lower credit score. Additionally, it shows good money management and the ability to live on less money than you make.
Budgeting – How much can you afford?
How much should you save and how much time will it take? That’s the million-dollar question! The answer to this question can vary depending on the individual and their finances.The first step in the saving process is budgeting. If you have no idea where your money goes every month, it’s impossible to save money for a down payment. Look at your bank statements and consider how much you spend on primary bills and paying down your debts. If you have a car loan, student loans, or credit cards, these can easily limit the amount of money you can save for a down payment.
What the bank says you can afford isn’t necessarily what you can afford. An unwritten rule is to spend no more than 25% of your monthly paycheck. While you may be approved for more, if you tie up too much of your budget in mortgage payments, you will be house poor and have little money for living expenses and extra spending money. Leave yourself some wiggle room to face emergencies or to embrace new opportunities.
Set a realistic budget and calculate how much you can save every month. You don’t want to keep the money you’re saving in your checking account. Depending on your timeline, put your money in a savings account with a higher interest rate or a low-risk investment portfolio. Your savings account becomes a non-optional expense.
Income vs Expenses
If you’re trying to decipher how and where to save money or you’re already living paycheck to paycheck, start reducing non-essential expenses by 10%. Cut the cable bill, get a cheaper cell phone plan or pack your lunches. When you’re saving for a house, pay close attention to any big purchases such as yearly vacations or expensive jewelry. Watch out for the little stuff too. That $4 energy drink or coffee you drink every morning could be delaying your savings for a down payment a little longer.
While savings may not add up quickly, you’ll be saving money towards your goals. If you’re the type of person who’s vulnerable to impulse shopping, consider automating your savings. Budget your cash strictly and give yourself time to save enough money – it’s a marathon, not a sprint.
A fast way to save money is downsizing. Downsizing revolves around reducing your expenses and living below your means while you save. Reduce unnecessary costs and divert that extra cash into your savings.
- Rent is one of the biggest monthly expenses. Can you find a way to limit your costs and shorten your road to home ownership?
- Consider moving into a smaller apartment, get a temporary roommate or rent a room on Airbnb. Sacrificing space and privacy might be difficult but remember, it’s only temporary.
- Could you utilize the benefits of public transportation? Selling your car saves more than just car payments. You’ll save on insurance, maintenance, and fuel, giving a massive boost to your savings.
Increase your income or kick off a new side hustle
Do you have any money left over after you get paid? It may be time for a salary increase. If the outcome isn’t favorable, don’t give up just yet. Invest your windfalls when you get a bonus at work, a tax refund, or an unexpected sum of money.
In this growing gig economy, it’s easier than ever to earn money in your free time with a lucrative side hustle. Whether that’s undertaking some freelance work, driving with a rideshare company, pet sit, or sell handmade crafts, an extra income means a savings increase.
When you decide to save for a house, you should have a strict plan in place. Establish how much you need for your down payment and which alternatives are available to you.
There are plenty of ways to save money. Create a reasonable budget, pick up a side hustle or downsize to save money. When buying a home, it isn’t just about how much you spend, it’s also about the sacrifices you’re willing to make. Are you ready to take these baby steps to create wealth through real estate?
Contact us today to get started with the right mortgage at the best rate!