Buying a house is, in most cases, the biggest purchase a family makes. Whether it’s your first home, second, or third, saving for the down payment can take some work.
The management team at Royal Bank Sage Creek helped outline some excellent tips to start your savings on the right track. For the diligent money-saver, some of these suggestions may seem like no-brainers, but for many of us, saving money means making some slight adjustments to our daily routines. Consider the following list of recommendations to help more money flow into your bank account, and, ideally, stay there.
Open a Savings Account
If you don’t already have a savings account, there are numerous different types of accounts available at low cost to you. Many are free, and only charge you for withdrawals. Some have monthly costs associated with them, and if you qualify, you can get a high interest savings account. Using an account with withdrawal fees discourages you to take money out of the account and helps grow your savings. These accounts are especially effective if you setup automatic deposits on payday.
Get an Assessment on your Current Home
Finding out your current home value gives you valuable information to determine how much money you need to borrow in order to purchase your new home. This is especially important as it gives you an immediate goal for saving allowing you to focus on the milestones needed to reach your down payment.
Account for Closing Fees
In addition to your down payment, you will need to save an additional 2-3% of said down payment for closing fees. Closing fees entail such things as lawyer fees, transfer tax, and any other additional costs associated with acquiring the home. These fees are attached to the sale of every home, so be sure to account for them.
Pay Off Credit Cards & Other High Interest Debt First
It’s very important to get rid of as much of your credit debt as possible. This high-interest debt will eat away at your ability to actually save money and may prevent you from getting a mortgage. The bank wants to see you have manageable debt before adding more to it, so make sure you get rid of it as quickly as possible.
If you are struggling to make your payments, consider a consolidation loan. Talk to your bank about moving any outstanding credit debt to a lower interest loan. Missing a payment is one of the worse things you can do while saving up for a mortgage. You want to prove to lenders you’re able to pay your debts.
Avoid Maxing Out your Mortgage
Just because your financier says you are eligible for larger mortgage, doesn’t mean you should purchase a home for that value. Talk to your lender, find out what you qualify for, then discuss the amount you should spend in order to maintain healthy finances. Having a little money left over at the end of the month goes a long way to help with savings, home maintenance and being prepared for emergencies. Also consider things like property taxes, insurance, utilities, etc. Make sure to incorporate those costs into your future budget.
Start Saving Now
Now is the time to start saving for your down payment. Start by putting $5 into your savings account after reading this article. If you can do this whenever you notice you have extra money, pair it with a regular deposit on paydays and in a couple of months you will surprise yourself!