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Saving up to buy a home can seem like a daunting task. Unlike buying smaller investments such as a car, a home requires a significant downpayment in order for a bank to approve a home mortgage.
Down Payment Basics
When purchasing a home, the down payment amount a lending institution will require can vary. In general, the lowest amount is 3% of the purchase amount, but most lenders look for between 5-10% downpayment. Many banking institutions will look for between 10% and 15% as a downpayment for people who have lower credit ratings.
Saving Money for The Down Payment
The most crucial part of saving up money for a home is remembering that it will take a period of time. Usually, to create the kind of savings needed for sufficient downpayment, first-time homebuyers should plan to save money for several years. Creating a timeline and a plan for weekly or monthly savings is the best approach and doesn’t require giving up living in a luxury apartment community.
Closing Costs and Other Expenses
In order for a buyer to secure a mortgage, they must pay several expenses. Almost all mortgages have a loan application fee which covers basic processing costs by the lender and usually covers the cost of an appraisal of the house. If a loan is approved, buyers will often need to pay loan points equal to one or two percent of the loan amount. This secures the loan interest rate. Other expenses include legal representation for the closing and costs for inspections of the home, such as pest and home inspections. These costs can add up to several thousand dollars.
Easy Ways to Save Money
When looking to save money without giving up everyday comforts, there are a few fundamental principles and tips that can help.
Cut Back on Dining Out-The average person dines out three to four times a month. If this is reduced to once or twice a month, the money saved can go into your special down payment savings account. This can sometimes equal a monthly savings of $100 or more.
Cut Back on Daily Specialty Coffee and Treats- Most people love their specialty coffee and treats. While this can be a great way to start the day, it can be costly. Cutting back to two or three days a week and the rest of the time, getting treats from home can actually save a significant amount of money. Investing in a home specialty coffee maker like a Keurig can help replace the daily need for outside specialty coffee. The savings can add up to $50-$75 dollars a month.
Just cutting back on excesses can be a great way to get you on the road to a good savings account balance in no time. While these are two great examples, there are many other areas where most people can cut expenditures that can total a significant amount of monthly savings.
Emma Sturgis is a freelance writer based out of Boston, MA. She writes most often on health and education. When not writing, she enjoys reading and watching film noir. Say hi on Twitter @EmmaSturgis2
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