The following is a guest post from our good friend Jason at WorkSaveLive. If you are interested in guest posting at Club Thrifty, please see our guest posting guidelines.
Buying a home is a major dream for most people as it offers pride of ownership and represents a sense of financial accomplishment. To have enough money saved for an outright purchase, or a good down payment, forces individuals and families to diligently budget and save. While there isn’t a science to the game, there are certainly strategies on how to save for a house.
Here are a few tips to help make owning a home possible:
1. Start Early to Build a Cash Nest Egg
While programs are in place to help first-time homebuyers, it’s still important to build up a cash reserve yourself. First off, you can avoid obtaining private mortgage insurance when you have a significant down payment (typically 20 percent of your purchase price). Second, having a decent down payment will give you some instant equity in your home.
2. Check Available Programs
Investigate Federal Housing Administration, State housing, and other entities concerning home ownership programs. These programs can help individuals and families obtain a mortgage with a lower down payment. At the WSL house, we personally used something called a “Rural Development Loan” which allowed us to avoid PMI while only putting 3% down.
3. Perform Due Diligence on What You Can Afford
An abundance of mortgage calculators exists on the internet to help you know your financial thresholds. Analyze how much you can afford to spend on a deposit and mortgage repayments. Utilize a mortgage calculator to determine the amount of your monthly repayments.
4. Shop Around for the Best Interest Rates
Unless you’re fortunate (and disciplined) enough to pay 100% down on a house, it’s likely you’re going to have to take out a mortgage. I’m often dumbfounded to hear how little people shop and compare mortgage interest rates between various lenders. We are a big fan of Quicken Loans.
While saving .2-.5% on your loan’s interest rate doesn’t sound like a big deal, it could likely safe you tens of thousands of dollars over the life of your loan.
5. Delay as Long as Possible
Can you hold off your purchase for a few years? If you can, consider investing your savings for a few years and use compound interest to your advantage. Depending on the time you’re willing to delay your purchase, you can utilize CDs or find a high-interest savings or checking account. If you’re willing to wait 3 years or longer, investing your money in the stock market may be a viable option and help add significantly to your down payment.
The longer you’re able to wait, the more of a down payment you’ll be able to save which will result in a lower monthly mortgage payment. If you can wait until you’ve saved up a 20% down payment, then you’ll also avoid wasting that $60-150/month payment for PMI.
6. Establish a Solid Career
Good careers are conducive to attaining the home you desire. Maintaining a solid employment record will make it easier to obtain a mortgage and will also give you the peace of mind knowing you can make your monthly mortgage payment.
Home ownership is attainable if you plan properly and work diligently to implement your plan. Combined, all your financial decisions – from shopping around for the best interest rates to even choosing the best online checking account – will help bring you closer to your goals.
Jason is the creator of the free e-course, How to Become Rich, and the founder of WorkSaveLive where he educates his readers on how to save money, pay down debt, and build wealth.