Buying a new home is a major undertaking that may take many long months to complete after you decide to pull the trigger by searching for a home to buy. Before you reach this critical point, however, you must ensure that you are financially ready for the purchase. The down payment is one important aspect of your financial situation that requires your attention. These tips will help you to save money for the down payment and closing costs.
Set a Savings Goal
Before you start saving, you need to know how much money you will need for the down payment and closing costs. To make this determination, you need to research housing prices in your area through a program such as new home builders. Remember that real estate prices vary dramatically based on the neighborhood where you are searching. Defining your home buying plans up-front is essential so that you can have a realistic range of sales prices that you are considering.
Explore Lending Programs
Once you determine an approximate range of sales prices that you may consider, you need to calculate the precise down payment amount that you may need. Talk to a few home lending professionals to determine which loan programs you may qualify for and what their down payment requirements are. You may also go a step further by asking for an estimated monthly mortgage payment based on different down payment amounts. This will ensure that you can afford the monthly payments for the scenario that you are planning for.
Cut Back on Spending
After you walk through these important steps, you can compare your financial need against your current available cash. Remember to factor in another three percent of the sales price for closing costs. Many lenders require you to have a cash reserve of at least three months of mortgage payments after the down payment and closing costs are taken into account. You may need to scale back your lifestyle so that you can save more money. Taking on a second job for a short period of time may also be helpful.
Think about Borrowing Money
You may not need to save the full amount of money that is needed. Some lenders allow you to accept a financial gift from a family member. For example, some parents gift cash to their adult children to be used for a down payment. In addition, you may be able to borrow money from your retirement account or to simply take an early distribution.
While the thought of paying a huge down payment on a home can seem daunting, you can see that it is feasible if you have the right strategy. Use these tips to develop an excellent strategy to save for your down payment.