Buying a house can be a stressful production when it comes to money. But it doesn’t always have to be this way. While many desire to make this dream a reality, not many know which avenues to explore to get there.
Most people focus on the mortgage but what they really need to look at is the deposit. A deposit or a down payment is an integral part of your journey towards owning a house. It’s a sizeable amount that many find hard to come up with.
Once you finally manage to gather up enough for the deposit, soon after you strive each month to come up with the money needed to service your mortgage loan to cover the amount used to make a full purchase.
“How much should I save to buy a house?” Here are some key things to know about.
The Full Cost of the House
Mortgages exist to help people become homeowners. But you can’t fully depend on mortgages to cater for everything when you are planning to buy a house.
Most lenders and home sellers require you to come up with 20 percent of the total price of the house.
The next question would be, can you afford it? When doing your calculations, it is important to factor in not just the down payment needed but also the accrued interest that you may have to finance along with the monthly payments over the entire period of the mortgage.
Note that issues such as a poor credit score may leave you servicing a mortgage loan with a far higher interest rate attached.
Average home prices range from $150,000 to $200,000 give or take. A sensible way to come up with the down payment you need is through savings.
For example, if you plan to save $45,000 for your down payment in 5 years, you will have to save $9,000 per year to meet your goal.
What Is Your Time Frame?
It’s easy to say that you want to own a house in the next, say, 5 years. But it is wise to also look at your finances and compare it to your expenses to determine whether or not this is indeed possible.
If you happen to have other loans that you are servicing (like student loans that can be refinanced), retirement savings or you have other urgent demands for money, you should consider either going for a cheaper house or going for a longer time frame.
Remember, if you have a shorter time frame, you will need to work extra hard to come up with the relatively higher savings required annually to meet your down payment goals.
Figure Out the Best Way to Save
There are a ton of ways to set some money aside for your home. Many opt to go for alternatives such as real estate investment trusts or stocks. The only problem here is that these are risky ventures may or may not work for you.
Better, safer alternatives would be to either go for the good old savings account or opt for a certificate of deposit. This way, you leave no room for risk or error which may leave you without a house in the long run.
A useful tip here would be to automate your savings. The moment your monthly or weekly payments reach your account, a part of it is instantly deducted and sent to the savings account.
This helps keep you disciplined and focused on meeting your savings goals within the set period of time.
Have a Flexible Budget
Nothing should be cast on stone. In the beginning, you may target to save a particular amount in down payment. But who knows what the future holds?
You may have a medical emergency or become a parent for example, which means most of your money will be focused elsewhere. In turn, this may prompt you to adjust your budget for a house downwards.
On the other hand, you may get a well-paying job that puts you in a position to be able to afford a higher budget.
Whatever your circumstances are, you should be willing to accept your financial situation and adjust accordingly.
Commitment is key in your quest towards home ownership. Nothing spells commitment more than you trying to find alternative yet clever ways to hit your annual targets when it comes to saving.
Maybe you just received an unexpected gift in form of cash for your birthday, or your income tax refund finally came through. Maybe your surprise bonus or large commission check has been approved.
Instead of resigning to euphoria and spending all the money, why don’t you send it all to your down payment savings account?
This will help ease your financial burden and it will shorten the duration you will take before you manage to come up with all the money needed for that deposit.
What you would have saved in five years may only take you three or four years if you stay truly committed.
Factor in the Hidden Charges
Now that you have mapped a way to come up with the deposit for your home and you have an idea of where you will access your mortgage, you may assume that all the financial demands have been settled. But not quite, because there are other charges involved. They include:
- Application fees
- Home inspection costs
- Credit check costs
- Earnest money
- Closing costs
All these additional costs are usually not covered by your mortgage loan. This means you will need to dig deeper into your pockets to buy your house.
How Much Should I Save to Buy a House? It Depends on Your Particular Situation
How much should I save to buy a house? No two people have the same homeownership experiences.
For some, it’s a smooth and easy process. For many, it is a journey full of ups and downs.
That said, it is imperative that you hold into account all the points listed above, save diligently and refrain from divisive and destructive habits that may bar you from owning a home.
Nothing beats the joy that comes with finally being a homeowner.
Once you get the keys to your house, you will have all learned important lessons along the way which will help you plan your finances better, change your bad spending habits and adopt new ones and overall live a more rewarding life.
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