Saving money can be difficult for some individuals. When you’re saving with a goal in mind, it may feel like a punishment or a chore. You must determine if your ultimate objective is worth the sacrifice. The down payment on a house may be as much as 20% or more of the loan. Your final decision will be based on a number of variables, including whether you are a first-time homeowner, the loan programs available, the loan types available, and your own personal ambitions.
You will know how much you need for a down payment once it has been determined the amount of loan you can actually afford. Closing costs are an additional 2% to 5% of the loan amount and may be rolled into the loan or paid in cash at the time. Will you include the closing costs or pay them out of pocket?
Figuring Out Your Numbers
Once you have determined how much home you can afford, you will then have to determine how much you will need for a down payment. You will need to begin the work of figuring out your numbers. What is the minimum amount you need to survive? This is the minimum amount you need to survive monthly without any frills. Then look at your last 30 to 60 days of bank transactions and expenses to see where your money is going right now.
Total up all your frivolous spending or transactions for items you want but do not actually need to survive for the month. This should include:
- eating out
- movies
- subscriptions and memberships, etc.
Calculate how much is going out to these items and determine how much you can do without. The next thing will be to determine what percentage of your income should be saved monthly to attain your goal. If you find your budget is too tight but you still want to purchase a home, there are options for you.
Explore Your Options
- If you are or have been in the military, you may qualify for a VA loan which allows veterans to finance 100% requiring no down payment. There are also Down Payment Assistant programs that can help lower the amount needed for closing. Some of these programs may come with penalties or heavy fees, so it would be wise to consult with a mortgage loan officer to determine the best options.
- If you are purchasing in a rural area and could qualify for a USDA loan. This option makes it possible to finance 100% with no down payment. You would have to qualify so again, always consult with a knowledgeable mortgage loan officer.
- Another option to assist in the down payment and closing costs is to get gift funds from a relative. The funds must be sourced or verified and must be a gift with no repayment expected. The donor will have to sign a letter stating how much is gifted and where the funds are coming from to help with the purchase of your home.
Put Your Foot Down and Just Do It
Remember that you are in survival mode to meet your goal. Try not deviate from your plan and consult with a professional mortgage loan officer to know your options. Anyone trying to save will tell you it is important to take the funds out of your checking account and place these funds in an account that is not too easily accessed.
Figure out what works for you and be sure to stick with it. Consult with a mortgage loan professional when you determine your goal and know your numbers because this can help you get into your home a whole lot faster.