Buying a home is the dream of a lifetime for so many of us, and for most of them, it will be the greatest financial investment we ever make. However, to get your foot in the door of home ownership, it is necessary to make a deposit against the mortgage loan. After college, many of my friends started saving immediately for the deposit and mortgage loan in hopes of getting the dream home and starting their dream family. However, 5 years later … and many of us are still renting and some have decided to stay living with parents and relatives!
So, You Want to Buy a Home, Eh?
The hard cold facts: Due to tightening financial standards and lender requirements, most mortgage applicants will need to make at least a 5% deposit or even as much as a 20% cash deposit toward their home purchase. It is tough, but not impossible. If you’re serious about purchasing a home, these seven simple steps will help you save for this significant expense.
1. Create a Budget
A budget is simply a set of rules in which you are telling your money where to go. With a budget, you are making your money work for you. Knowing your fixed and irregular expenses for the past three to four months will help you to create a budget. Look through credit card and bank account statements to find out how much you have spent on variable expenses such as groceries and entertainment to decide on how much money to fund that category. One of my favorite websites, Budgets are $exy, give you a collection of free budget templates you can use to get started.
2. Stick to the Budget
Stick to the budget you have made for yourself. This may mean that you must pass up an opportunity to go out with friends if you’ve already spent the month’s entertainment money. It may also mean using generics instead of name-brand items. You will need to live below your means in order to have money to allocate to the mortgage deposit. The benefits of sticking at it, even if it means eating beans and rice for a while, can’t be under emphasized.
3. Seek First Time Home Buyers Assistance
There may be local programs for first time home buyers that will provide financial assistance for mortgage deposits. When I was living in the UK, for example, the Help to Buy Scheme provided assistance for homebuyers with cheap funding. It was, however, not available for remortgages. The US has similar opportunities, such as the NHSNYC (Neighborhood Housing Services of NYC), so be sure to find programs in your local area!
4. Set Up a Dedicated Savings Account
Place the savings for the mortgage deposit into a separate, special bank account that is not easy to access for withdrawals. This helps to keep your savings safe and all in one place. It’s simple and makes sense!
5. Ask for Gifts
If any of your friends or family want to give you a gift, make it known that you are saving for a mortgage deposit. They may be interested in contributing directly to your savings account. Instead of ending up with unwanted or unnecessary items, you may enjoy seeing your savings grow. Your family or friends may also be able to directly gift you the entire or partial mortgage deposit.
6. Cut Back Cut back on anything but essentials
Your rent, groceries and utilities should be paid but consider cutting out unneeded clothing, entertainment, hobby and leisure purchases. Stick with inexpensive and basic meals to reduce food bills. Lower the thermostat to reduce utility costs. Stuck for ideas? Check out Jess’ article on Easy Ways to Save Money & Food.
7. Earn More
Perhaps you have a collection or a valuable item that no longer holds your interest. Sell it. Have a rummage sale. Ask your employer for more hours or pick up a second job. Put out word that you will do odd jobs such as dog walking.
Hope you find this list helpful. Did we miss anything? How do you save up for purchasing a home?