Step 2: Estimate How Much You Need for a Down Payment
Your mortgage payment is largely dependent on the size of the down payment of the house. For instance, a mortgage payment with a 20 percent down payment will be lower than if you put 10 percent down. How much of a down payment can you afford to make? Can you make a bigger down payment up front so your mortgage rate comes down and better meets your budget?
Keep in mind, you’ll also be paying closing costs and mortgage fees, so you’ll need to start saving for more than just your down payment.
Step 3: Create a Savings Timeline
It’s time to think about when you plan on actually purchasing a home, since this will guide your savings timeline. You’ll need to decide how much time you want to spend saving for a house and how much you need to save per month to reach your identified down payment budget.
The aggressiveness of your savings goals depends on how long you’re planning on saving for your down payment. Do you want to have enough saved for a down payment, closing costs and mortgage fees in one year? That’ll be much more intensive than a two-year or more plan, but it’s doable if you have a plan in place! Sit down and review your current budget to create a realistic savings timeline.
Step 4: Build a Home Savings Plan
Now that you know how much you want to save and have decided on a target monthly savings, it’s time to put a plan in place. Start by reviewing your current budget to identify ways you can cut back on costs or if there are ways you can make more income. There are countless ways to save each month, with some methods more vigorous than others.
Here are a few simple tips to start with:
- Move to a cheaper apartment/rental
- Skip eating out at restaurants
- Make coffee at home
- Pack lunches for work
- Pick up a side job
- Work overtime
Want more strategies to save money? Here’s a more detailed guide to help you save for your first home.
Step 5: Improve Your Credit Score
When it comes to buying a home, your credit score plays a vital role. Improving your buyer’s credit score will increase your chance of being approved for a mortgage and it’ll give you more leeway to put down a smaller down payment.