Getting ready to trade in your monthly rent payments for homeownership is an exciting step. But with it comes the need to take a long, hard look at your finances. Here are 5 steps on how to save for a home:
1. Map out your finances
To get a comprehensive overview of where you stand financially, create a budget by listing out your income, expenses, debts and other assets and liabilities. This can help determine how much you can afford to spend, where you can buy and ultimately how much to save for a down payment.
If you know you’ll be buying a house in the near future, try to cut back on unnecessary expenses. Or if you have the time, consider starting a side business that could generate a bit of extra income for your savings.
Look into cities or neighborhoods you’d consider living in, different property types and average housing prices to get an idea of what the market looks like. We can assist you with all this, and also get you in contact with a trusted mortgage agent
3. Set a goal and plan ahead
Determine how much you want to save for a down payment and how long you have to save. Coming up with monthly deposit goals that work for your financial situation will help you stay focused and make progress.
Keep in mind that besides the down payment, you’ll also have to pay other fees like closing costs which includes land transfer tax and maybe even mortgage insurance. Total closing costs are approximately 2% of the cost of the home. This means if you purchase a home for $600,000 with a 2% closing cost, you’ll have to pay $12,000 to your lawyers in addition to the down payment.
4. Make regular contributions to your savings
Make the most of all your newly saved money by putting it in a savings account. Whether those be your tax returns, fractions of your bi-weekly or monthly paychecks, a bonus, or a cash gift: Instead of spending it, save it to quickly move closer to your goal.
5. Lower your debt-to-income ratio
Eliminating debt has two benefits. First, less debt means more money you can put toward your savings. But more importantly, paying off debt lowers your debt-to-income ratio, which increases your chances of mortgage approval. As you pay off debts and cancel bills, consider rerouting those payments into your dedicated savings account. This will also reflect positively in your credit report.
It’s never too late to start saving for a home – Why not start today?
We are here to help you achieve all of your real estate and financial goals. Contact us at any time for advice, market statistics or to help you develop a plan on how you can attain your homeownership goals.
The Sullivan Team at (905) 639-7676