If you’ve been considering buying a house in the near future, the current stimulus check can help go a long way in saving up enough money for a down payment, earnest money deposit, and overall buying a house. If homeownership is in your future, it’s important to start as early as possible preparing your finances and saving as much as you can. Here’s how to start saving now for buying a house.
#1. Understand how much house you can afford both now and later.
By running some numbers now with the lender you can determine how much home you can afford with a monthly mortgage payment. Great lenders can help project in the future after paying off debt, maybe a job promotion, or after you saved a little bit of money. However, mortgage rates are the lowest they’ve almost ever been so now is a great time to consider buying a house. You have more buying power, meaning you can afford more house for less money because of the interest rates.
Consider all the expenses that come with owning a house from taxes to insurance, utilities, and maintenance. Then consider all of your other expenses such as car payments, child support payments, utilities that probably won’t change like cellphones and the Internet. Deduct all of these from your monthly income to determine what you really can afford when it comes to a house payment and owning a property.
#2. Work on lowering your debt.
Borrowers with too much debt are seen as risky investments. Try to work on lowering your debt, paying off debt, yet not canceling the account altogether. Lenders want to see that you have available credit. If you cancel the account immediately after paying it off, it will lower your available credit and bump up how much you actually owe. Paying off accounts but leaving them open looks the best to lenders.
#3. See where you can cut expenses.
Take a look at your overall spending. If you need to… And it’s a great idea, put a piece of paper on your refrigerator documenting every single penny you spend. Make several columns as in grocery, entertainment, necessities, household, and any other major categories and then write down how much you are spending in each of those categories and where you have spent it. If you do this for a couple of months you’ll see that you might be spending more in one area than you should.
#4. Consider pausing retirement savings.
If you currently have a certain amount of money coming out each month for retirement, perhaps suspended or just put it on hold for a few months and take that money instead and put it into a savings account specifically for a down payment. However, this is not a long-term strategy and you should definitely pick up your retirement savings the moment you can.
#5. Practice your future house payment.
Pretend that your rental payment is now your mortgage payment. Whatever your lender said your payment would be, try to make that each month for at least 2 to 3 months. Practice paying this new amount each month by way of a savings account and see if it’s reasonable, doable, and obtainable.
Additional: What to Do If You’ve Been Denied for a Mortgage
#6. Consider supplementing your income.
For the time being, you may take on an extra job. Delivery drivers, a part-time job, or selling certain items can all add money into the down payment bank.
Planning on buying a house is exciting but you should go in with eyes wide open. Know your credit history, get a copy of your credit report, talk to lenders about your goals, and get a clear plan of attack. If you’re serious about it and really put the effort in, you can be a homeowner sooner rather than later.