So you have decided to buy a house, second home or investment property but do you have enough money saved for a down payment?
Here are 7 steps to saving up so you can make your property goals a reality.
1) First determine how much you need to save. This depends on the purchase price of the property and the percentage of the down payment. Most lenders require anywhere from 5% to 20% of the purchase price depending on the type of loan. The goal is to put 20% down so you don’t have to pay Private Mortgage Insurance (PMI). So let’s say your plan is to purchase a $200,000 (National median home price) home and put 10% down (average down payment), you would need to save up $20,000 for your down payment. You will also need some additional funds for closing costs.
2) Next determine your timeline. Per the National Association of REALTORS, 37% of buyers saved up for their down payment for 6 months or less. 15% saved up for 6-12 months and 10% saved up for 12-18 months. How long do you plan to save?
3) Now, break it down. How much will it take each month to reach your savings goal within your designated timeline? For example, to save $20,000 in 24 months you would need to save $1,667 per month.
4) Decide where you are going to save your money. Select a bank with low fees and high return. Try to keep this account away from your others so it is not easily accessible (so it is not in your face every time you log in to check on your checking account balance tempting you to spend it). If you can move money there directly from your paycheck that is always best – out of sight, out of mind.
5) START BIG! Unless you have this extra income each month, you will need to commit to some major lifestyle changes for the next year. For example, can you move to a smaller less expensive apartment for a year or take in a roommate in your current place? Another option is to take on a part time job. Or you could trade in your car for a less expensive one. Overall, what big step are you going to do to make your property goals a reality? After all, it is just a year right?
6) THINK SMALL TOO. What small changes can you make to save money? Here are some simple ideas for small savings that add up:
7) Get an accountability partner. Don’t let all of your planning and hard work go to waste. Partner with someone that will help keep you in line. They should be ok with being hard on you if necessary and supportive along the way. Having someone holding you accountable might make you think twice before going on that spur of the moment shopping trip.
Good luck with your savings and just remember how amazing the reward will be! As always, let us know if The Hereda Team can assist you with your property goals in any way. CONTACT US TODAY.