Historically low interest rates have resulted in many consumers considering investing in a home of their own. The benefits are big and the rewards of buying a home are far reaching. For many of those consumers, a down payment is the only thing standing between them and the dream of home ownership. Here are some simple things you can do to save for that down payment and make your dream a reality.
1. Get in the know. Where are you NOW? As you put a plan in place to save money it is most important to know where you are now. Credit scores, monthly bills and your current assets are things that will be considered when you speak with a mortgage professional. They will be able to tell you how much home you qualify for and how much you have to save to purchase your home.
2. Set a deadline. By setting a deadline, you have the motivation to reach your goal and have established a timeline for your savings plan. The bottom line is that a deadline is a powerful motivator to help you accomplish your goal of home ownership.
3. Create a Down Payment account. By establishing a savings account specifically for your future home purchase, there is less chance you spend the money elsewhere. Check with your bank or credit union to see if they have an interest bearing account that will allow your money to grow faster. The key to this part of the plan is to have the discipline not to touch this money for any reason. Hold yourself accountable and you will be rewarded in time.
4. Take a good, hard look at your monthly bills. Credit cards or revolving credit with high interest rates hurt your cause. First, they are costing you big time and just wasted money. Secondly, those high rates mean high payments which affect your debt-to-income ratio which mortgage lenders will take a hard look at when considering your loan qualification. Make a list of your creditors, how much you owe, the interest rate and the monthly payments. Take the highest interest rate one first, get it paid off and then work on the next one in line.
5. Automate your savings. We have all heard the term out of sight, out of mind. In this case it is out of sight, out of spending reach. Once you have determined how much you can save every month, have that amount automatically withdrawn from your account and deposited in your down payment savings account.
6. Ask about IRAs. If you have IRAs, check and see if yours has any first time home buyer benefits. Some will allow you to invest a considerable amountof pre-tax dollars and withdraw without penalty for home purchases. They often will provide a higher rate of return on your investment than a traditional savings account. So take a moment and call your IRA provider or financial advisor to see what is available to you.
7. Every little bit counts. Get yourself some type of money container for your home. For instance, I have a glass jar that I keep in my bedroom closet. Each day put whatever you can in the container towards your house fund. From leftover change to a couple of dollar bills, it goes into the container. You can also place money that you would normally spend, but decided to save in your home fund container. Instead of Starbucks, drink the coffee at the office and place the $4-$6 in your fund. Or pack a lunch and take the money you saved by not eating out and add that $5-$10 to your savings container. Then either once a week or once a month count your money that you collected and deposit that money in your home fund savings account.
Saving for a home of your own can be challenging, but it can also be very exciting. The sense of accomplishment and the feeling of personal reward can be extraordinary. By starting with these seven steps, you can soon enjoy realizing your dream of buying your new home.
Steve Lester is a REALTOR living in Allen, Texas.