LifeGoal Investments Blog
How To Save for a House: Top 10 Tricks To Save Fast
How To Save for a House: Top 10 Tricks To Save FastHaving a desire to buy a house is a natural feeling. It is also stressful and overwhelming as you brainstorm ways to develop the down payment, but it doesn’t have to be.
Having a solid savings plan will help you reach your goal, and before you know it, the key to your new home is in your hand.
Simple saving tips and strategies are all you need to get you closer to moving into your new home.
Should You Buy a Home?Buying and owning a home is a huge investment. It’s not for everyone though, and it’s okay to admit that. Sometimes owning a home is more expensive than renting, the maintenance certainly can be.
There’s a few questions you should ask yourself first before charting a course to buy a home:
- Do you have plans to move away from your current location? If you aren’t planning to reside in a home for five years or greater, home ownership may not be the best path. Buying a home costs thousands of dollars which are at risk when turning it back into the market for sale after a few short years.
- What does the job market look like? This is something to keep in the back of your mind. House hunting can take you around the block or around the world depending on where you want to go. If you love the job you have now but can’t find a house to match, you may want to be patient for now.
- Should you rent or own a home? Now this is a great question. In some cases, renting is cheaper than owning a home. Grab an excel spreadsheet and crunch the numbers. Add in your preferred lifestyle and family interests too. Deciding whether to rent or to own becomes a personal preference, there is no right or wrong answer.
What Is Your Credit Score?We aren’t at the stage of the game where you are applying for a mortgage just yet, but it’s important to know what your credit report looks like beforehand. When was the last time you requested your credit report and reviewed it? Do you know what to look for?
There are three major credit bureaus: Transunion, Equifax, and Experian. They act independently or each other. The bureaus compile your credit report into a credit score ranging from 300 - 850.
Remember, the greater the number the more appealing the credit report to mortgage lenders. There are two types of credit scores: FICO and Vantage Score to make it more complicated. The scores are rated within the same range, but are weighted differently.
Request your annual free credit report before applying for a loan. Check your report for completeness and accuracy. A stronger credit score results in a more competitive interest rate, saving you loads on your mortgage expense in the long run.
What Is Your Down Payment?People shudder when they hear the term “down payment.” Some even walk away, thinking they’ll never be able to afford it. Don’t give up on your goals, instead find ways to save so that you’ll be ready at closing when it’s time to hand over the down payment on your new home.
Determining the amount of your down payment depends on:
- The purchase price of the home
- The type of loan
- How much you can afford to pay
Think of it this way, the more money you put down, the more affordable your mortgage payment will be. You may also hit the ground running with built-in equity in your home. This sounds great, but it also has some disadvantages. For example, if you want to buy a home sooner rather than later saving 3% is faster than saving 20%. A larger down payment may also deplete your rainy day fund. Do you really want to do this?
Mortgage Loan OptionsBasic rule of thumb is to put 20% down on the purchase price of a home. The reason for it is to avoid paying private mortgage insurance, or PMI.
This is an insurance benefiting the lender, most commonly applied to conventional loans. It’s purpose? To insure the lender in the event that you are unable to make your mortgage payments. Private mortgage insurance rates change daily, averaging from 0.5% to 1% of your loan per year.
We’d just like to make it known that it is not mandatory to place 20% down on a home, just recommended. In fact, browse loan options that you may qualify for as some require a lower down payment ranging from $0 down to $3.5%.
Various mortgage loan options are available to home buyers. Common ones include:
- USDA - USDA loans are built for people with low-to-average income. These loans are backed by the U.S. Department of Agriculture offering no money down financing options, low mortgage insurance premiums, and below-market mortgage rates.
- VA - the Department of Veteran Affairs offers this loan option servicing veterans, service members, and surviving spouses. These loans contain little to no down payment, no private mortgage insurance, and a competitive mortgage rate.
- Conventional - loans that private mortgage lenders back. These loans require a down payment and a good credit score. The interest rate on a conventional loan is heavily dependent on the buyer’s credit score.
- FHA - insured by the Federal Housing Administration, FHA loans meet the needs of first-time home buyers that have little to no savings and/or struggle with their credit. Down payments are as little as 3.5%.
Ready To Begin Saving?Now the real fun begins - it’s time to begin saving towards your new home. Incorporate these strategies into your financial plan and grow that future down payment.
1. Create a BudgetBuilding a budget is easy. The hard part is sticking to it! If you feel yourself ready to divert from your budget at any time, grab a photo of your dream home or something to remind you of the gold at the end of the rainbow.
If you don’t want to create your own budget on a spreadsheet, there are budget calculators available to befriend. Otherwise, here are tips you can use to manually create your budget:
- Start with your income. If you have a fixed income, this part is simple. If your income varies, determine what your average income is. But be careful if you have peaks and valleys to ensure you use the best estimate for the entire year.
- What are your monthly expenses? Include recurring expenses such as utilities and rent as well as expenses for food, gas, insurance, medical, clothing, etc. The trick here is capturing where your money goes and being as inclusive as possible.
- Optional: Include a reserve fund. A house ages and will need future repairs. Some can be costly, such as replacing an HVAC unit or a roof. Having a reserve fund built into your budget is also recommended.
Try to keep your mortgage payment to 25% or less of your income after taxes. How much residual income does that leave you? Is it enough to cover a mortgage payment and still leave you with a cushion to save? If not, are there areas of your budget that you can modify?
2. Temporarily DownsizeMoving can be strenuous. Depending on your savings strategy, though, it could benefit you. Look around your current home. Do you need all of the space? Or is it possible you could downsize?
This can quickly reduce the amount of monthly rent you are paying and repurpose it into your savings account. Not a bad trade, right?
Downsizing doesn’t have to relate to moving. Instead, do you have someone else’s treasure? Perhaps you have an extra vehicle that you can cash in on? Host a garage sale in your neighborhood to bring in the money, or list them on an online platform.
3. Change Your Purchasing HabitsSpending habits vary from person to person. But the impulse buying and take-outs need to be put on pause.
Stop Impulse Buying
In today’s world, it’s so easy to jump onto a computer or tablet and access the retail universe. It’s just as simple to click on “buy now” and purchase a product or service you want but do not need.
That’s exactly what advertisements are meant to do, pull you in. When you are ready to take a break from spending, unsubscribe from marketing emails - you can always re-subscribe later. Plus, there will be less to pack up when it's time to move into your new home.
Cook At Home
Take a break from the coffee shop, fast food chains, and restaurants. Every penny counts when saving for a home and these purchases add up very quickly. Take a look at your annual credit card report or bank statement. It may surprise you.
4. Increase Your IncomeIt’s easy to earn extra money if you know where to look or how to ask.
Is It Time for a Raise?
If your wallet is feeling dry due to inflation, is it because it is time for a raise in your workplace? Be confident and incorporate these tips in your request:
- Time the question to your manager right, such as during an annual review. Avoid reaching out to them during a time sensitive timeframe or a high period of stress.
- Highlight your achievements and your progress, outlining it in a report. Coming prepared to the meeting is half the battle.
- Keep your confidence high and thank your manager. You don’t want to come across as needy or selfish. Instead, you want your manager to see your growth and your future with the Company. Maybe you can even offer to take on more responsibilities to compensate?
Do You Have Time for a Second Job?
If you have extra time during the day or over the weekend, pick up a side job where you control your hours and your schedule.
Here are some examples you can explore:
- If you don’t mind driving you can sign-up for Uber and chauffeur. Or, you can head to restaurants and bring people food to their doorsteps through DoorDash.
- Have a love for animals? Try pet sitting or dog walking.
- Like computers? You can stay home and test apps or websites, checking off whether or not they are user-friendly and providing suggestions for improvement.
- What’s your hobby? If you paint, play an instrument, love taking photos, etc. share your freelance talent and make some extra dough.
Find something that interests you to keep you engaged. Meanwhile, watch your down payment savings soar.
5. Defer Vacation PlansThis doesn’t mean you can’t have fun or take some time away from work to relax. Avoid splurging on exotic places, or distant travel. These can easily cost a family of four $4,500 or more! Instead, research areas near you that would result in an enjoyable staycation.
6. Pay-Off DebtSaving is important, but paying off your debt is too. When applying for a mortgage loan, the lender will look at your debt-to-income ratio. You become an unfavorable candidate when the ratio is high, signifying that you have more debt than income and are a financial risk to the lender.
7. Have a Spare Room?Rent out a room short-term or throughout the length of your lease. This is a great way to subsidize your current monthly rent payment and utilities, especially if the space is sitting around collecting dust.
Option 1: Set-up the available room on hospitality websites such as Vrbo or AirBnB. You can control the dates the space is vacant through the platforms.
Option 2: Rent out the space more long-term by getting a roommate.
8. Ask for AssistanceThis doesn’t mean you need to go door to door with your hand out. Sure, you can ask a family member for help - but what we mean here is to crowdfund, fundraise, or seek government assistance.
Allow for a large number of people to assist you as you save for your down payment through crowdfunding. Broadcast your excitement and need to purchase a home, requesting donations from the population. Crowdfunding is initiated online.
Another way to raise money is through the old school method of fundraising. Similar to crowdfunding, fundraising involves the local community. The difference, fundraising is more personable and face-to-face whereas crowdfunding is hosted through the screen.
Down Payment Assistance
Check with your local, state, and nonprofit organizations to see if down payment assistance is offered. Most will cover as much as 4% of the purchase price on your home, should you qualify. It’s definitely an option to explore.
9. Set-up a Savings AccountCreating a designated savings account for your down payment goal can help keep your money separated, and off limits. You can also set-up automatic withdrawals. It’s a simple trick that can lead to your savings account’s quick growth. Set-up automatic withdrawals from your paycheck to a savings account.
This is an easy choice since the majority of banks offer savings accounts. You can easily transfer your money between accounts at the touch of a button. The FDIC or the NCUA guarantees savings account balances. The downside? The interest rates are very low, so your money’s growth can take some time.
First-Time Home Buyers Savings Account
Some states offer a specialized savings account tailored to first-time home buyers. Perks will vary by state but are built to incentivize people to purchase homes.
High Yield Savings Account
A high-yield savings account is recommended, earning the best interest when compared to a traditional savings account. On average, interest rates can be 10 to 20 times as much as a regular savings account, the highest rates offered by online banks versus brick and mortar.
10. Invest Your MoneyInvesting your money in brokerage accounts comes with some risks but it can lead to quick returns greater than that of a high-yield savings account. Options include stocks, bonds, mutual funds, and ETFs. If you are not pressed for time and have some flexibility, investments can help you with your down payment.
Share your savings goals with a financial advisor or broker. Gain their professional expertise to build a portfolio that aligns with your strategy.
The Bottom LineYour dream home remains a dream until you act upon it. Start putting money aside now to save towards the hefty down payment requested at the time of closing. It may take a year or two, but reap the worth when you sign the deal and can label yourself as an official homeowner.
Building an investment portfolio protects you in the future, whether it is there for your plans of retirement, future child care expenses, buying a home, and more. ETFs are a strong option to add to your investment strategy.
Visit LifeGoal Investments to learn more about ETFs available to you and how they can potentially get you the results you are looking for.
Ultimate Guide to Preparing for Homeownership | MMI
How to Save a Down Payment for a Home in 1 Year | Hometrek
How To Save Money For A House: Tips to Start Saving Quickly & Easily | CU SoCal
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