It can seem to be a pretty intimidating and daunting task to purchase your first house. If you’re someone who has never had anything more than few thousand dollars in the bank at any point of time, then setting aside some solid figures is extremely necessary for paying down the exact amount on your mortgage loan. However, if you thought that gathering a down payment is a herculean task, it is not so. It’s not as difficult as you may perceive, provided you go about the best way.
Determining how much house you can afford
The foremost step that you have to take is to save up enough amount that you will pay down on the home loan. Typically, the lenders will control your mortgage amount so that the monthly mortgage installments will not surpass 28% of the pre-tax monthly income. But in case your income is not enough to gather the amount for the exact down payment, work towards a loan with a lower percentage rate. Homeownership comes with added expenses apart from the monthly housing payments like added utility bills, repair costs, association fees of homeowners and so on.
Getting yourself a mortgage calculator could possibly help you determine the total amount of loan you can afford. However, you need to ensure that there is no such calculator which takes into account all aspects of your financial state.
Set a plan for saving
Once you know the total amount that you require saving, the very next step is to analyze how much money you can set aside every month. This will also help you in determining how long you will take to have the entire down payment in your hand and when you can start shopping. For instance, in case you think of saving $45,000 for some down payment, setting down a time period of 5 years will mean saving $9000 in a year and $750 in a month. Though you may feel that squeezing out an extra $750 from your tight budget is impossible, yet you have to do it. How about using a savings calculator to do the calculations right?
Accelerate the process of saving
One way in which you can make the process of saving faster is by getting better returns on the money that you’re saving by investing a part of it in stocks. Instead of keeping aside the money in a savings account, it is always better to invest it in order to make your money double itself.
Borrow from your 401(k)
Do you have a well-funded 401(k) account and you can borrow half the money and use it for the down payment on your home loan. However, make sure you pay back the money within 5 years along with the interest rate. The interest rates here won’t be similar to the payments you do to your creditor.
Hence, before you even think of getting a home loan for yourself, make sure you have enough saved in your bank account so that you can pay down the right amount and avoid PMIs throughout the month.