How much you should have saved up to purchase a home, and some quick tips on how to build a savings faster for that downpayment on your dream home.
10 min read
Saving up for your dream home can seem like an impossible task, but with some time and a detailed plan you can have enough funds built up to purchase that home you've always dreamed of.
The first step towards saving for a home will be to set a goal for how much you even need. Without a goal, and a detailed plan it's just a dream. So figure out how much house you can get pre-approved for, and this will guide your goal of how much you should have saved up. Here's a common myth that is told, you need 20% down to purchase a home, but this couldn't be further from the truth! Depending on your credit score and income, you may be able to ink the deal with as little as 3% down on a conventional loan.
Why do so many people believe you need 20% down on a house to be able to move in? The 20% myth comes from the additional requirement of private mortgage insurance needed if you close on a house and put less than 20% down. This insurance isn't life changing, it's just an extra monthly expense that you'll need to pay until you cross over 20% in equity in the property. This type of insurance protects the lender and mortgage investor if you default on your loan. Though having a 20% down payment will save you money over time, it’s not a requirement to buy a home. PMI rates usually fall between 0.5% to 1.5% of the loan. While the amount you pay for PMI can vary, you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.
Now that we've dispelled the myth of saving up 20% you can now choose a path that works best for you to save faster.
Once you have a goal in mind for how much you need to save to purchase your home, you can simply divide that number by the number of months left before your ideal purchase date. Now that you have a monthly number in mind and can automate your savings goal with Qoins to either have a % of your paycheck automatically contributed towards your savings goal or you can have a specific dollar amount. Let's say you want to save $10,000 in 12 months for home. In the Qoins app you can set up "When I Get Paid" to automatically take out $192 per week from your paycheck ($384 if you get paid bi-weekly), and just wait 12 months to see your goal fully funded without ever thinking about it!
Another reason to pay down debt is to improve your debt to income ratio! Putting extra income towards your debt when you're saving for a home may seem counterintuitive, but it's actually one of the first things your lender will look at when considering you for a mortgage loan. The more debt you have, the less favorable you are as a candidate. This can mean that you’ll pay more in interest and have a higher down payment requirement. Having a healthy debt to income ratio shows your lender that you will not have issues with other types of debt interfering with the monthly payments that a mortgage will add to. This doesn't mean you have to be debt-free, but cutting out toxic debt like credit cards can show your lender you're a great candidate to give their most favorable rates. Take some time to reduce your debt before you apply for a mortgage loan. Take a look at how much you owe on your car, student loans, credit cards, and make a plan to pay off debt while also saving. P.S. the Qoins App allows you to set up a pay off debt and savings goal so that you can choose how aggressive you want to be on each, and automate the process so that you can focus on earning more to speed up the flywheel of purchasing a home.
Skip the vacation, kick the bad habit, move into a smaller apartment for a year or two. Cutting expenses for just one year could free up your income to be funneled into a savings account to be able to purchase a home in just one year with the proper discipline being deployed. Downsizing is the process of reducing your expenses and living below your means while you save. Moving into a smaller apartment, selling one of your extra vehicles or moving to a more affordable area, like outside of the city, are all great ways to downsize. Many people downsize while they save for a major purchase.
Cut bills by having BillFixers negotiate your savings, at no extra cost to you!
Insure your home and items in it hassle-free with Lemonade insurance.
There are many ways to boost your earning power. Some simple methods are to utilize a side hustle in your free time to earn extra income for your house fund. And remember this isn't meant to be an endless process, this is just for a moment in time to bump your income up to simply save more faster. Another great method, and in some instances a longer term play would be to prioritize career growth. This not only increases your earning power in the short term like a side hustle, but it also clears a path into the future to sustain it. Ask for that raise if you deserve it, make that job switch that pays you 20% more, or fight for that position that has just been opened up. The income options are literally limitless from freelancing to pet sitting to ride sharing, there is no shortage of bumping up your income to put more towards your savings goal.
