One of the biggest challenges for many people who are seeking a home loan is the down payment requirement. In most cases, home loans require that you provide anywhere from ten to twenty percent down to secure the loan. Depending on the size of the mortgage, this can add up to a pretty substantial amount. Here's a look at a few things that you should know about saving for your down payment.
Know How Much You Need
You can't even begin to plan for your down payment unless you know how much you are going to need. That means working with a home loan lender to find out how much you can be prequalified for. Then, you can calculate the percentage and determine how much money you will need to have for a down payment.
Create Your Budget
The easiest way to save your down payment is to create a strict budget that allows you to put money aside. This means that you need to evaluate your income and your expenses carefully.
Separate your expenses into categories. First, identify the fixed and necessary expenses. These include costs such as your current rent payment and your utilities. From there, you can then identify the necessary fluctuating costs. These are things such as your cell phone, fuel, groceries, and similar costs. Finally, divide your incidental and luxury expenses into another category. These are things such as dining out, game subscriptions, and other expenses like these.
Your fixed necessary costs don't allow any room for reduction in most cases. However, the necessary fluctuating costs might. Consider dropping your cell phone plan down and saving the difference every month. Reduce your grocery budget by $50 or $100 a month and put that into savings, too.
Finally, look at the luxury expenses and determine what you can live without. Remember that it's only temporary. You're welcome to resubscribe or restore that expense once you get settled into your new home.
Find Other Sources
If you're hoping to buy sooner than what your savings plan will allow, consider looking at other sources to help you close that gap. For example, you might be able to borrow against your retirement fund, use the equity in a home you currently own, get a personal loan, or even seek gift payments from friends or family members. Just make sure you know your lender's limitations on gift payments making up any portion of your down payment so you don't find yourself short later.