Just over half (52 percent) of Americans say they are likely to buy a home in the next five years, according to a 2015 BMO Harris Bank Homebuyers Report based on research by Pollara Strategic Insights, a public opinion and market research firm
Saving for a down payment to buy a home is typically one of the biggest challenges for aspiring homeowners. A down payment is often the single largest purchase a consumer makes in his or her lifetime.
The American Bankers Association Foundation offers prospective homebuyers saving strategies:
- Meet with a Banker first. When you are getting serious about buying a home, meet with an American Federal Banker who will help you determine how much you will need to save to buy a home, how large a monthly payment you can afford, and explain the home-buying process, including getting pre-qualified.
- Develop a budget and timeline. Once you know how much you will need for a down payment, create a budget and calculate how much you can realistically save each month – that will help you gauge when you will be ready to transition from renter to homeowner.
- Understand your expenses. Potential homebuyers don’t always think about the additional costs that can impact the homeowner’s monthly expenses, including property taxes and specials, association dues, and homeowners insurance. If you rent, you may not pay utilities–city water and garbage collection, gas and electricity. Your American Federal Banker will help you keep these expenses in mind when you are determining how much of a home you can afford to buy. Get an average monthly breakdown of expenses before an offer is made on a home. Understanding how a monthly house payment and the associated expenses fit into an overall financial plan will ensure you have room to contribute to a retirement plan and an emergency “rainy day” savings account as well.
- Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you will be less likely to tap into it when you are tight on cash. If you receive a tax refund, consider putting all or a portion into this account.
- Get a Credit Report. Take advantage of a free credit report from annualcreditreport.com. Knowing where your credit is at will help you understand what you can realistically afford. Your American Federal Banker will help you understand your credit score and what you can do, if you do not have enough trade lines on your credit report or no credit score at all.
- Monitor your spending. With American Federal Online Banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into a savings account for a down payment.
- Visit Open Houses. Begin to look at Open Houses and review property marketing sheets so you get a sense of what you like and dislike about houses and what properties of different sizes, with different amenities in different neighborhoods cost.
- Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $15,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.
Make an appointment today to visit with your local American Federal Banker.