The Lending Coach

Saving enough money to buy a house might seem like a monumental task, but don’t let that prevent you from taking the first steps.

Remember the old adage: How do you eat an elephant? 

Answer: One bite at a time.

Once you get started, you will find getting there is more accessible than you expected.

Here are a few thoughts on getting there…

Start Saving – Set a Goal

The biggest hurdle is often the down payment — so that’s where we will begin.

The down payment is the upfront money used to purchase a home. Then, you can finance the rest of the house with a home loan. Requirements on the size of the down payment differ by loan type, but your down payment can be as low as 3%, especially if you’ve got a solid credit score and manageable debts.

To save for a down payment, start by knowing the minimum requirement for the type of loan you plan to get. The most common mortgages are:

• Conventional loans – down payments as low as 3%
• FHA loans – down payments as low as 3.5%
• VA loans – down payments as low as 0%, although these loans are limited to current and former U.S. service members and qualifying spouses.
• Jumbo loans – down payments as low 10%.  These are larger mortgages that go beyond conforming loan limits

You will also need to consider saving for closing costs, as well – and these are typically between 2% and 5% of the home’s purchase price.

One other thing to consider…you can use gift funds from family for down-payments and closing costs.  Find out more here…

Set…and Stick to Your Budget

You don’t have to give up everything to make this work — the cost of a coffee or two a week won’t make or break your upcoming purchase. But minimizing other expenses may help you save for a house faster. Here are a few places to look:

• Shop your car insurance rates to make sure you have the best deal available
• Find out if you can save by checking your technology plans (cable/phone/internet/cell phone)
• Refinance your student loans or refinance your auto loan to lower the monthly payments.
• Cancel subscriptions you’re not using.

To find other ways to reduce expenses, track your spending for a month to see where your cash goes.

Save Your Raises and One-offs

One great idea is to transfer any extra money to your house savings before you get a chance to spend it. That might include:

• A tax refund or credit
• A raise or bonus from work
• An inheritance
• Birthday, holiday or wedding gift money

Automate Your Savings

It’s easiest to save when you’re not even thinking about it. Try these tricks:

• Set up automatic transfers – make saving easier by scheduling a transfer from your checking to your savings account. Set it up to deposit a little bit every month, every week or whatever rhythm works for you. Your employer also might let you set up a direct deposit split, so some of your paycheck goes directly into your savings account.
• Stash spare change – no, not in a piggy bank (though you can do that too, if you want). A variety of banks and budgeting apps allow users to round up card purchases to the nearest dollar and put the change in a linked savings account.
• Use a cash-back credit card – you guessed it — put that cash back toward your down payment fund. To maximize your cash back, put as many purchases as possible on your cash-back credit card, making sure to pay it off each month so that interest charges don’t decimate your earnings.

Utilize Other Savings

You might have some savings right under your nose – some things include:

• Your 401(k) – many would-be buyers borrow against it – and they pay themselves the interest back!
• Your individual retirement account – first-time home buyers can withdraw up to $10,000 from an IRA without penalty to purchase a home. However, you’ll have to pay the income tax due on the withdrawal, unless it’s a Roth IRA.

Improve or Maintain Your Credit Score

It seems like those with good credit catch all the breaks when it comes to getting the right mortgage. It’s easier for them to qualify, and they get lower interest rates.

So, make sure to get your credit score in good shape! FICO scores range from 300 to 850 – and mortgage applicants get the best mortgage rates and terms when their FICO scores are 720 or higher.

To find out what is impacting your FICO score you will want to review your credit reports.  You can obtain a free copy of your credit report from each of the three main credit reporting agencies — Equifax, TransUnion, and Experian — at www.annualcreditreport.com.

I’d also invite you to check out this article on improving your credit score here…

In Conclusion

Small steps add up, so tackle your savings goal from multiple angles.

It might feel daunting to save for a house when prices are on the rise — but every journey has to start somewhere. Whatever you can afford to sock away will only benefit you in the long term.

Please do reach out to me to start strategizing on how you can make a home purchase happen, as I’d be glad to help work on a plan that fits your situation.

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.