Saving towards a mortgage becomes easier as soon as you accept that it takes time and sacrifice. If you’re just starting out, understand that it may take two to five years before you’ll be ready. If you’re in a lot of debt or have a low income, it may take even longer. The key is to start (no matter how small).
The following tips in saving for a mortgage can help.
1. Assess Your Current Financial Situation
You have to understand your current economic situation before you can even begin to work towards your goal of owning a home. During your assessment look at how much you:
- Spend on average
- Have saved
You also need to find out what your official credit report says.
2. Identify the Type of Home You Want
Identifying the home you want from the onset will help you understand the size of the mortgage you need and how much you need to save towards a down payment. Twenty percent (20%) is usually recommended to avoid the added cost of private mortgage insurance. While you may not be able to save this much, remember that the less you borrow the lower your rates may be and the lower your monthly payment will be.
3. Align Your Assessment and Home Preferences
In this step you’ll look at:
- How much you need to save versus how much you have saved.
- What your mortgage payments will be versus how much you currently earn and spend.
- How your current debt may affect getting the mortgage amount you’ll need.
You may have to revise your preferences, so keep an open mind.
4. Create a Plan
Now that you know where you are and where you need to go, it’s time to devise a plan. Your credit report will come in handy at this point because clearing owed amounts and correcting errors on your credit report will play an important part in this step.
Your plan must include:
- Creating a budget that allows debt repayment and saving while being able to afford yourself.
- Cutting spending where possible.
- Focusing on clearing high-interest debt first.
- Correcting errors on your credit score.
- Seeing where you are lagging in terms of payment and addressing the issue.
- Keeping track of your progress as well as proof of all payments made and amounts saved.
- Managing the credit cards and short term loans you continue to use.
- Setting timelines and assessment points to see if you’re achieving the intended results.
This may seem hard, but it’s achievable if you remain mindful of the following:
1. Your repayment and saving amounts may be small at first. Concentrate on repayment but save something from each paycheck no matter how small. It’ll become a habit and your account will “age” as you go.
2. You may have to speak with your creditors to get a payment plan that’ll allow you some breathing room. Debt consolidation at a reasonable rate is also a great resource. Just ensure you’re not unknowingly filing for bankruptcy or making a financial move that’ll work against you in the long run!
3. You must increase how much you save as your debt decreases. Use automatic repayments and compulsory savings options to ensure you stay on track. Then, manage these by decreasing and increasing amounts where necessary (never decrease your savings amount!).
4. You have to realize when it’s time to seek credit counseling. This may be at the onset or it may be as time progresses and you realize that your plan isn’t working.
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