If you are ready to make the leap and purchase your first home this year, there are several things to consider. Even before you begin your search, the most important thing is to save for your down payment. The larger the down payment, the better terms you can get on your mortgage loan. I have six tips to help you save and move closer to buying your first home.
1. Know What You Can Afford
The first step towards saving for a down payment on a home is to know how much you can afford to spend and the amount of down payment required. The down payment can vary based on your personal situation and the purchase price of your new home. You can research the price range and type of home you want by visiting a real estate website to view values in neighborhoods you like.
2. Understand Your Expenses and Calculate Your Debt-to-Income Ratio
Compare your gross monthly income and current expenses on regular bills, including student loans, car payments, credit card debt, etc. Track your spending by writing it down to see where your money goes every month. Lenders will determine your current debt-to-income ratio to determine an estimated price range for a new home. The more considerable your current debt, the less you can spend on your new home.
3. Set a Goal
Now that you know a price range, you can calculate a minimum and maximum down payment for your home purchase. Create an attainable goal to save the required amount before you start looking at home.
4. Set Automatic Deposits or Transfers
One of the most manageable ways to save money is to set it aside automatically where it isn’t available to spend. If your employer provides direct deposit, you should be able to send part of each paycheck directly to a savings account. If not, see if your bank has an option for automatic transfers and make a standing monthly transfer to your savings account. When you don’t have to think about it or manually transfer the money, you are more likely to save quickly.
5. Save All Extra Money
Whatever your timeline is for saving for your downpayment, make it a habit to save any gifted funds or windfalls you may receive during this timeframe. For example, if you receive a bonus at work or a gift from grandma, put it straight into your downpayment savings account. No amount is too small to save; every little bit helps you reach your goal and build the habit of saving. Developing a savings habit now will help you as a homeowner in the long run.
6. Talk to a Lender
There are many loan programs to consider when purchasing a home. Some are designed for first-time home buyers, which may be specific to an area and often include a lower down payment requirement. A local lender will help you discover the loan that is right for you. Even if you are still deciding whether to buy a house today, speaking with someone who understands the current lending environment and the local market you hope to purchase in can be helpful. You will be able to save your down payment and be prepared for what comes next.
When purchasing your home, saving the right amount for your down payment now will give you an advantage. An educated buyer who understands the buying process will find it easier to buy a home, even in the most competitive market.
If you are considering buying or selling in the Palm Springs area, contact me, Stephen Burchard, The Desert Bowtie Realtor®, taking the (k)nots out of real estate.
