Understanding Financing Terms

4 Tips For Savings For A Down Payment On A Home

When it comes to purchasing a home, you need more than a great credit score and a solid job; you also need money saved up so you can put a deposit, or a down-payment, on the home. Savings up for a down-payment on a home is a long-term process, but here are some tips that may help you in this process.

Figure Out What You Need to Save

First, you need to figure out how much you need to save. Although there are lots of loan programs that allow you to place a smaller deposit, the traditional amount you'll need to place is 20% of the cost of a home. That means if you want to purchase a home that costs $200,000, you'll need to have at least $40,000 saved up for the down payment.

When it comes to figuring out how much you should save, you can guestimate the cost of the home you will want to purchase in the future, or you can get more technical. You can use an online mortgage calculator to figure out what type of mortgage you can afford, and thus how much you'll need to save.

Determine When You Want to Purchase a Home

Next, you need to figure out when you want to purchase a home. The timing of your home purchase will greatly impact your saving strategy. For example, if you want to save up $40,000 in 2 years, you'll need to save $20,000 per year, whereas if you want to save up $40,000 and purchase a home in 5 years, you'll only need to save $8,000 per year. Knowing when you want to purchase a home, and thus how much you need to save per year to reach that goal, will help you create a savings plan.

Evaluate Your Budget

Increasing your savings means that you are going to need to make some changes to your budget. Sit down and figure out what you spend money on each month. Look at your budget and determine if there are any areas that you can eliminate. For example, downgrading to a lower television plan that only costs $100 a month instead of $200 could allow you to save $1,200 a year.

Keep in mind that making little changes may not be enough. You may need to make some big changes, such as moving into a home with lower bills or selling a vehicle with expensive monthly payments and purchasing a vehicle with cash, allowing you to put the money you would spend on a more expensive vehicle into your savings.

Creating an Automated Savings Plan

Having to manually move money into your savings account is an easy way to get off-track. Instead, set-up an automated savings plan so that a portion of your paycheck is going directly into your savings account each month. By allowing this money to skip your checking account, you will help increase the likelihood of success in reaching your savings goals.

Saving a large amount of money for a deposit for a home is not an impossible goal. You just need to figure out how much you need to save, and when you want to reach that savings goal. Then, you need to look at your budget and figure out where that money can come from and automate your savings plan. Contact a home mortgage company in order to learn more.