Buying your first home is an exciting milestone. As soon you decide on your budget, your next step will most likely be to identify the best financier/lender (if you are not making a cash purchase). Today, there are so many options for financing that hardly does anyone worry about where they will get their mortgage.
So, what do first-time homebuyers mainly stress about? The deposit. In part one of this article, we gave you 7 Tips for buying your first home. In part two, we will focus on the benefits and ways you can save a deposit toward your first home.
Mortgage Deposit.
At its simplest, a mortgage is a down payment you will make towards your house. That is based on a percentage of the total house price and is usually at least 5%. According to trussle.com (June 2021), “Coronavirus has led to most lenders only accepting deposits of at least 10%. This made it harder to get a mortgage with a deposit of just 5%.” Note that you can always pay the rest of the house sale price in full or with a mortgage after paying your deposit.
When you choose to pay with a mortgage, having a deposit demonstrates to the seller and lender that you’re invested in the transaction. It may be the deciding factor in a bidding war or prove less risky for the lender. Besides these early benefits, having a deposit has many other immediate and long-term benefits; here are a few:
- Lenders like customers with large deposits because it shares the risk of the investment. Paying a substantial deposit says you are more likely to repay your loan.
- When you have a deposit, you may get to negotiate your interest rate depending on the lender you choose.
- Having a deposit makes it easier to secure a mortgage than seeking one hundred percent (100%) financing.
- It is often recommended that you pay up to twenty percent (20%) in deposit. That is because you have a lower mortgage and a higher chance of getting a renovation loan if you need it, among other benefits.
We know financing a house purchase can be overwhelming, but securing a deposit helps to cushion some of that stress. Here are 5 realistic ways to save your house deposit.
5 Realistic Ways to Save Your House Deposit.
- Save as You Earn: Decide on an amount or percentage based on your revenue, and save from every earning.
- Automate your savings: Open a savings account specifically for your deposit. Use your online banking platform to set a recurring deposit from your salary account to your house-deposit account.
- Reduce & Lodge: Look for ways to reduce spending, and be deliberate to save what you no longer spend. For example, you can reduce your grocery cost by starting a food garden. Then deliberately saving the money you do not spend at the market.
- Eliminating Bank Fees: Look through your bank statements and see where you have been paying fees you could have avoided paying. For example, pay bills on time or in advance, so you avoid late fees. Use cash for transactions that attract a service charge when you use your card. Take advantage of early payment discounts from utility companies.
- Invest: If you have a year or more before purchasing your house and are comfortable with the risk, you could consider investing. You can invest in Stocks, Shares, Forex Trading, etc. See our article on Stocks for the Working Class.
So, once you have set your house-purchase budget, determine how much you want to deposit when the time comes. Then, identify ways you can save a deposit toward your first home.
Bonus Tip: Get a side hustle. All your passive income can be saved toward your deposit.
Happy Buying!
Share your questions and comments with us; we would love to hear from you.
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