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Home piggy bankOne of the most common financial goals that people have is to be able to buy a home. Here at City Wide Home Loans, we love to help people reach that goal. If you’ve set your sights on becoming a homeowner, here’s our advice to help you save up for a down payment, and to help you get a better rate when you take the plunge:

Saving Up

Saving up to buy a home will mean making a lot of room in your budget. It might mean squirreling away windfalls like bonuses instead of going out and spending them; it might mean that you get a significant raise at work, but still live like you hadn’t. It might mean picking up a side gig for a while to make some extra money to save away.

In order to determine the amount that you need to save up, we recommend meeting with some kind of financial planner. You want enough for a down payment and for closing costs. There will also be move-in expenses. After all that, you need to be comfortable making your monthly mortgage payment. You don’t want to put yourself in a tight spot where even a small hiccup in your finances will put your home in jeopardy.

The Pros and Cons of a Savings Account

It’s also important to remember that the cost of a house that you like today will likely be less than that same house in 3 years when you’ve saved up what you need. Factor in inflation when you’re setting a goal.

Additionally, where you decide to store your money as you’re saving up is an important thing to think about. A savings account gains hardly any interest, which means that it’s not staying consistent with inflation. On the other hand, if you decide to invest that money, it might mean that it’s locked up for a longer period of time than you’d like, and you always run risk of losing money. Some banks will offer you a goal savings account that earns higher interest. However, it’s usually best to invest your savings.

Getting a Better Rate

When determining an interest rate for your mortgage, the rule is usually simple: if you’re a higher risk, you’ll have to pay more interest. Low-risk individuals get much better rates. So how can you appear less risky to lenders?

  • Avoid Job Hopping: Sure, sometimes it’s definitely financially beneficial to change jobs. However, most individuals lose a lot of earning potential by switching jobs and even careers throughout their lives. And if you seem to quickly change from one job to another, the risk of your being unemployed and unable to make payments might appear quite high.
  • Protect Your Credit Score: Building up good credit history is an important factor when you borrow money for a home. However, even if you’re a very responsible borrower, you still might find yourself the victim of identity theft or other factors that seem out of your control. Talk to your bank about what you can do to protect your credit score.
  • Avoid Large Purchases: This is especially true if they’re luxury expenses, like a giant television, or a major vacation. Think twice about these purchases, and postpone them when possible.
  • Make a Habit of Budgeting: Your financial situation won’t suddenly get easy when you own a home. The cost of upkeep, taxes, and your mortgage payment will all require you to be intelligent about budgeting. So start now, as you save up for your house, and be ready to continue your disciplined habits in the future.
  • Take Time to Educate Yourself: Not everyone is cut out for home ownership, and not every area is going to make it worth your while to buy a home. Never invest in a home just because someone told you real estate is a sure bet. Instead, do the numbers yourself and see if you’re end up with a positive cashflow. Unfamiliar with the phrase “cashflow”? Then it’s time for you to learn!