Many first-time buyers put off buying their first home due to a struggle to come up with a down payment and closing costs. However, there are many ways to save up for these additional upfront costs with the right plan and assistance available. Here’s how first-time homebuyers can save up for their down payment and set up a meeting with their local mortgage lender in no time!
Instead of just stashing away your cash, research the best place to stash it! Among several options are high-yield savings accounts, money market accounts, and Certificates of Deposit (CDs). It’s important to note that CDs come with penalties for early withdrawals, but this restriction can come in handy to avoid any temptation to dip into your down payment fund. In addition, a CD has a set timeline, so if you are looking to buy a house in the next two years, an 18-month CD may be a good fit to add an extra buffer should you buy a home earlier than expected.
Ladder Certificates of Deposits (CDs)
Open different certificates of deposits (CDs) at varying maturity dates to maximize your earning power! Instead of opening a single large CD, spread or “ladder” your money into three-month, six-month, and one-year certificates for flexibility to adjust your investment as rates change. If rates aren’t so favorable, this strategy allows you to save still but lock in a higher rate for a higher return down the road.
Setting it and forgetting it is one of the best ways to save up for anything! Those that receive a regular paycheck can ask an employer to direct a portion into their savings account. On the other hand, if you’re an independent contractor or want more control over your automated savings, you can set up a recurring transfer from your checking to your savings account through mobile or online banking. Therefore, these funds would build up over time without you even having to think about cutting back on expenses further.
Explore Assistance Options
As a first-time buyer several assistance programs are available if you’re struggling to save up for your down payment. For those that meet specific income requirements, help may also be available through state housing agencies. In addition, it doesn’t hurt to do research on deferred loans (loans paid back during the sale of the house or once the mortgage is paid off) or forgivable loans (loans that don’t need to be paid back after you live in the home for a certain amount of time). Lastly, many buyers use Private Mortgage Insurance (PMI) to put down less than a 20% down payment on a mortgage but also give assurance to the mortgage lender that they are good for it by paying a PMI premium on top of the mortgage loan payment each month.
Cut Out Extra Expenses
To save more faster, you should find ways to spend less where you can. Take a hard look at your monthly spending to identify discretionary expenses that you can cut out. Even cutting back on a recurring subscription or two can add significant savings towards your down payment over time.
Buying your first home in 2022? Move into your dream home with a solid down payment and a mortgage from Mechanics Cooperative Bank on your side! Contact us today to get started.