Tips on How
to Save for a Down Payment on a Mortgage
by Ellise Walsh
The first step you will need to undertake when beginning
to save for a mortgage down payment is to calculate approximately how much
money you will need. Most down payments are calculated on a percentage basis
of the total loan. Don’t make the mistake of assuming you can get a mortgage
loan for zero down. These types of mortgages are advertised frequently and you
may be able to qualify and you may not. The safest course of action is to
assume you won’t and work on saving for an average down payment. This means
you need to decide how much you can afford to spend on a house and go from
them there. Mortgage loans vary, but many can be had for 95-97% financing.
This means you will need to come up with the remaining 3-5%. That may not
sound like a lot, but keep in mind that the more expensive the house you
select, the larger your down payment will be required.
Additionally, keep in mind when you are able to put more
money down on a house, you will be able to reduce your mortgage payments and
pay off the home sooner. Another benefit is that larger down payments often
persuade lenders to overlook problems like splotchy credit records.
Once you have determined how much total money you will
need for a down payment on a home, decide how long you are willing to wait
before purchasing a house. This will help determine how much money you need to
free up from your budget every month. Divide the total down payment by the
number of months you are willing to wait. 12, 24, 36, whatever. Unless you are
fortunate enough to receive a large cash sum by way of inheritance or some
other unlikely manner, freeing money from your monthly budget is going to be
your best bet at saving towards a mortgage down payment.
Next, set up a special account for your down payment.
Don’t co-mingle your down payment money with the money you use for regular
expenses. Consider selecting an interest bearing account that will earn a
little extra money just for sitting there. Make regular deposits into the
account.
Consider cutting out extra expenses. If you have a
tendency to eat out frequently, take a look at cutting out at least one trip
per month. Over the course of several months, this may save you a tidy sum of
money. Also take a look at other extra expenses, such as entertainment and
possibly even your clothing budget if you are an avid shopper. What about
hobbies? Do you contribute a significant amount of money towards purchasing
items for a collection? Thinking about taking a few steps back and putting
that money towards your down payment account for awhile.
What about sodas, cappuccinos and cups of coffee? Do you
spend more than your fair share on drinks per day? Just cutting out one a week
can go a long way towards your goal of saving for a home.
Instead of eating out for lunch, pack a sandwich and a
piece of fruit. You may lose a little weight and you’re down payment fund will
get a little heavier.
Do you live close enough to walk to work? Think about how
much doing that just once or twice a week would save. Even if you don’t live
close enough to walk, give serious consideration to setting up or joining a
carpool. Not only will you be doing a good turn for the environment, but
you’ll get a little closer to having your down payment as well.
If you do receive a little extra cash, for birthday
presents or as refunds, deposit it directly into your down payment funds.
Don’t even think twice about it; if you do you’ll be more likely to spend it
on something frivolous and still be short the money you need for your down
payment.
Think about auctioning off some items you don’t need or
don’t use anymore. Plenty of everyday people make extra money by utilizing
on-line auction sites. What you may consider to be worthless dusty junk could
be the treasure someone is looking for and would be willing to pay top dollar
for. Items that fetch the best prices are collectibles, antiques, designer
clothing and college/university textbooks.
Save your pocket change-literally. All those lovely
little coins can add up to a healthy chunk of money. Get in the habit of
emptying your pockets every night. At the end of the week make a deposit into
your down payment account.
