Determine your budget
The best way to start saving for a home is to determine what type of budget range you have available to purchase a house. The best way to do this is to just start shopping around for houses that you might be interested in living in. You can see what the asking price is for houses that you like and this will help you determine how big of a down payment you will need.
A down payment is simply the amount of money you need to pay upfront in order to secure the amount that you need to borrow. In most cases, you pay for a portion of the house upfront (the down payment), and the rest is secured through a loan (that you will repay in monthly payments, called a mortgage). Most mortgages last for 30 years.
To get a good idea of what the down payment will be, you can use this tip:
- The average down payment for a house in 2019 was approximately 12% (and for first-time buyers, it was just 6%). This means that if the house you want to purchase costs $300,000 then you will need to put down approximately $36,000 (300,000 * .12 = $36,000).
- Keep in mind that the exact number may be slightly different for you depending on things like your credit history, the lender you work with, the length of your mortgage, and other factors.
By simply shopping around for houses that you are interested in and doing these simple calculations, it’s a good way to see if you’re being realistic with yourself. If the down payment that you need is way out of range, then you know you either need to make some lifestyle changes to help you save or start looking for houses in a different area.
Want to increase your budget? What are you living with today that you could possibly cut out to save a few dollars? That extra cable package? Do you REALLY need those extra sports channels? Unlimited data on your cell phone when you are always on WiFi? Do you shut the lights off when you leave a room? How high do you keep the heat in your current place? 72 degrees? Do you think you could manage at 68 degrees? Little simple changes like these could save you hundreds of dollars a month, which in turn could increase your down payment budget thousands of dollars. Always live within your means. You’ll be surprised at how much you can save.