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3 Tips to Save For a Real Estate Down Payment

October 20, 2016
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As US News & World Report points out, saving for a down payment is often the toughest hurdle that any potential homeowner is going to face. Preparing for this financial burden is not always easy, and if done incorrectly, it can mean the difference between landing your dream home and having to wait for another point in time. If you want to save enough money for a real estate down payment, consider following these 3 tips.

Figure Out What You Can Afford
What is the best way to determine how much you can afford as a down payment? Well, start by building a budget for yourself and figure out the price of a home you can afford. The average buyer still puts down 10 to 20% of the value of the home as a down payment, though that figure is trending downward with time. If you know your budget, you can shop accordingly and pick out a home that you can actually afford to put a down payment on without sacrificing your financial stability in the process.

Believe it or not, the size of your down payment can directly affect your mortgage payment in more ways than one. The most obvious is the fact that the more money you put down now, the lower your monthly mortgage payment will be. What most people overlook is the burden they saddle themselves with if they become overextended on a down payment and have no financial buffer to cover mortgage payments in the event one or more parties lose their job.

Here is a helpful way to figure out how much you should be saving for a down payment. You should live in your home for 5 to 7 years and be able to reconcile the closing costs and transaction fees paid at the time of purchase.

Use Automated Savings
One of the best ways to set aside money for a down payment is to forcibly do so. Any savings account you have will have the option to establish automatic deposits into the account each month. Just figure out how much money you need to save and how long it will take, then set up the appropriate amount of money to transfer into that account each month.

The American Bankers Association recommends establishing a separate savings account and making your monthly contributions automatic. Not only does this ensure that some level of saving is taking place, but it also prevents your money from being grouped together. As a result, you will be less likely to spend this money between now and the time of purchase.

Track Your Credit
As you approach the time to buy a home, do not be careless with your credit rating. Your credit score is going to be the single most important factor in the type of loan you are able to get and the rate associated with your mortgage. Avoid opening any new lines of credit and spend your money wisely, contributing only to savings and paying down any old debts you can afford to deal with prior to purchase.

If you follow these three steps, you will be able to build up enough money to make a real estate down payment without sacrificing on the type of home you want or your current lifestyle. For more information, please contact Manhattan Ridge Advisors.