Many apartment renters are socking away money for a down payment on a home. The truth is, buying a home isn’t just about what mortgage payment you can afford each month. Lenders are being stricter about who they will loan money to and how much they will loan. It is essential to save up enough money to put toward a down payment. Saving money after paying rent and other bills each month may seem difficult, but it is an attainable goal for many people.
Set a Goal
Taking your monthly income and bills into account, determine how much you can afford to spend on mortgage payments. Keep in mind that you will also be responsible for all utility bills as well as property taxes. Figure these costs into your calculations. Determine the price range of the home you will be looking for. Traditionally, the home buyer is expected to pay 20% of the home’s value up front. If this is a feasible amount for you, set that number as your goal.
Create a Budget
Make a plan for how you can save extra money throughout the month. Write down a list of all your fixed monthly expenses, such as rent, cable and other expenses that stay the same each month. Then make a list of your variable expenses. These are the bills that may change each month. Examples include utility bills like gas and electric as well as groceries or medical bills. Determine the average amount that you spend on these variable costs. Then figure out how much income you receive after taxes. The difference between your costs and earnings is your disposable income. From this amount, you can determine how much you are able to save each month. Allow a small cushion for extras like a dinner or two out or maybe a couple movie rentals and other incidentals. Then sock the rest away.
Making Saving Automatic
Making a transfer of money from your checking to your savings each month sounds easy, but chances are you may not get around to it. Instead of waiting until the end of the month to transfer money into savings, set up your paycheck so that a certain percentage of your earnings is automatically deposited into your savings account. If you start with less spending money, you are less likely to overspend in a month. It also means that more money is going into savings without you having to think about it.
Find out if there are any other sources that could help you get the money you need for a down payment. Many government agencies and other groups can make special arrangements to assist people that may need a little extra help. Services offered by the Federal Housing Administration, Veteran’s Administration and state housing authorities can help out low-income families with down payments and obtaining mortgages. If you have other types of savings, you may be able to borrow money from yourself for a down payment. Certain retirement plans allow participants to borrow money for down payments from their own 401k’s.