Whether you’re a first-time home buyer or looking to relocate, deciding to buy a new home is a big step, and saving enough money for a down payment can seem impossible. However, there are several key strategies to help you save for your next real estate purchase.
Depending on where you’re moving and the market in that area, figuring out how much you need to save can be tricky. Here are some general guidelines to follow as you begin to prepare for the next season of your life.
The good news is that many lenders no longer require 20% down, and depending on your credit score and income, you may be able to get a conventional loan with as little as 3% down. Note that you can also qualify for a Department of Veterans Affairs (VA) loan with no down payment. It’s important to research loan options for an estimate of how much money you’ll need and find real estate agencies suited for such a sudden move, like PCS Clarksville TN, before you start saving.
How to save for your next real estate purchase
Once you’ve decided how much you can afford, it’s time to start saving. Here are some tips to keep in mind while doing so.
1. Set a budget
The first step to saving for your next home is to create a budget that will help you reach your financial goals. You need to know how much income you (and your spouse or partner) earn each month. Then look at your bank and credit card statements to see where most of your money is spent.
Consider how much you spend on non-essentials such as restaurants, entertainment, shopping, etc. If this process overwhelms you, a budgeting app is useful for automating your savings and controlling your budget. Once you’ve broken down your expenses, determine the areas you can cut back on. Set a specific amount to save for your down payment with each paycheck and make your savings a non-negotiable item in your monthly expenses.
2. Put your money in a higher interest savings account
Ideally, you’ll be able to choose a savings account with a high interest rate instead of a typical checking or savings account. Some examples are high-yield savings accounts or the money market. These types of accounts will earn you more money over time. To determine the best option for you, do your research with online or brick-and-mortar banks, including major credit unions.
3. Reduce the size, if possible
This simply means living below your means and spending money only on the essentials. Put the extra income directly into your savings account. Downsizing might look like selling vehicles, clothing, or other assets to make room for a temporary season of savings and lower monthly expenses.
4. Reduce your bad habits
We can all fall victim to bad spending habits, such as eating out too much or shopping online too often. You don’t realize how much money you can save each month by being diligent about cutting unnecessary expenses.
Put what you would normally spend on a latte at the coffee shop into your down payment fund. Unsubscribe from monthly subscriptions like TV and music streaming services, and try cooking meals instead of ordering in during the week. Over time, these little impulse buys will add up.
5. Reduce your debt
If your goal is to buy a home, the first thing lenders will look for as a mortgage candidate is your overall debt-to-income ratio. The more debt you have, the less likely you are to be approved for a home loan, or you may end up paying a lot more in interest and having a higher down payment requirement. To avoid this, use this savings time to reduce as much debt as possible. Determine how much you owe on credit cards and loans and make a plan to reduce it as much as you can.
All in all, if you accumulate these strategies to save for your next real estate purchase, you’ll be in good shape once it’s time to move.