Today, when purchasing a home the desired down payment for a mortgage is typically 20%; however, more often than not, people don’t have that amount of cash available to them without a strategic savings plan in place. There are various ways you can go about saving for a down-payment to buy a home, but ultimately it comes down to how dedicated you are in reaching your financial goals.
Here are 5 baby steps to get started in term of securing the mortgage you need:
1. Set Your Priorities
First and foremost you need to analyze your priorities and re-think your spending habits. Are you one that eats out on a regular basis, splurges on a winter vacation, or drives a top of the line vehicle? If so, are you willing to sacrifice cutting back on such habits, to save for a house? Determining what is more important is the first place you should start. If you’ve decided your top priority is saving for a home, then the next thing you should put together is a budget. In what areas can you cut back spending? Where can you limit spending and instead direct those funds into a savings account? Identifying what is crucial in your budget and what is considered “fun” money, will allow you to organize your payments and spending habits.
2. Pay off any Credit Card Debt
It’s challenging to save money when you are busy paying interest to someone else. Tackle your debt by beginning with smallest debt that has the highest interest, first. Once you have managed to pay this off, you can move onto any other debt owing. After all credit cards have been paid off, the funds used on these monthly payments can be allocated towards your savings account.
If you apply for a mortgage while having too much debt, you likely won’t qualify on your own; to avoid this probability it’s best to pay off outstanding credit card balances, prior to anything else.
3. Downplay Your Recreational Budget
Making conscious changes to your lifestyle will help you save significantly, and it doesn’t mean you lose out on fun! Here are some great examples:
• If you are a regular reader and purchase books often, try resorting to the library as an alternative. They have a wide selection of books, and you can borrow them for free.
• Are you a movie guru? A night out at the movies is great, but the costs can add up quickly. Try renting, sticking with cable, or even watch your favourite shows/movies online.
• Are you a clothing shopper? Try using what you already have, or be selective in what you purchase. If something really catches your eye, perhaps wait to see if it goes on sale.
The key to saving money is resisting the urge to spend money on something that isn’t a necessity. Even cutting out two restaurant meals a week can make a huge difference. If you are able to discipline yourself accordingly, you’ll be surprised how quickly funds will add up.
4. Live with a Friend or Relative
Living with a close friend or family member is a very practical approach to saving for a down payment. Cutting back on rent payments or eliminating them all together provides immediate cash flow that you can set aside for your home. As long as you are contributing in some other way be it towards food or utility bills, the arrangement can work out quite well for everyone.
5. Pick up a Part Time Job
Working a part time job in addition to your current one means dedication, but it also means big pay-off when it’s going towards buying a home. Simply set your accounts up so that your part time earnings are deposited directly into a separate savings account; this will rid any temptation to spend, and in the end you’ll have a real great sense of self-pride – not to mention a chunk of your down payment saved!