As of the middle of 2020, mortgage rates have dropped to a record low for the fifth consecutive week. There has never been a better time in history to be a home buyer. Less than 15 years ago, mortgages rates were over double what they are today. Currently, mortgage rates are around 3.35%.
Many of the tips you can utilize for drastically cutting your expenses apply to saving for a house down payment. But before you can qualify for a mortgage, you will need to have enough money for a down payment on the house. Here are a few ways that will put more money in your pocket and better prepare you for your mortgage application.
Buy Less House
The first tip in saving for a house has less to do with saving and more to do with smart shopping. Whether you can find a loan that allows for a down payment as little as 2% to 3%, or if you are using a traditional loan with 20% down, the amount of money you will need for a down payment is directly tied to the cost of the house. This may seem like an obvious point, but it’s part of the larger concept of not being house poor.
Being house poor is when you buy a house for more than your budget allows for. The result is that instead of making improvements or going on vacations and having disposable income, you end up cutting back as much as possible each month in order to pay your mortgage.
A house is very likely the largest single purchase you will ever make. It is understandable that you do not want to settle for a house you won’t be happy with. However, paying more for the “perfect” house can leave you with severe buyer’s remorse and could potentially lead to a foreclosure.
To avoid being house poor, look for a smaller house. Often, many rooms in a house go unused and simply make for longer cleaning sessions and higher property taxes. If you can find a smaller house that fits your needs, you can have all the fine finishes you desire, while paying fewer taxes and having a lower monthly mortgage. It also means a lower down payment.
Arm Yourself with Budgeting Apps
There are several quality budgeting apps, and while many offer varying themes on the same services, there are a few that you should start with right now if you’re looking to save for a mortgage.
Mint is regarded by many as the best all-in-one budgeting app you can download and provides a full suite of money management and budgeting assistance. Mint delivers a real-time look at all of your financial accounts and provides suggestions and advice for improving your positions. It has an easy to use interface and breadth of potential functions.
One of Mint’s helpful features is a marketplace that allows you to search for new credit card opportunities, investments, saving accounts, and personal loans. Mint makes it easy to track upcoming bills and set goals, and it also provides you with a credit score.
While Mint has the capacity to track your credit score, Credit Karma is the go-to app for understanding and increasing your credit. With your credit score being a major factor in getting a favorable mortgage rate, increasing your credit can be just as important as saving for a down payment.
Credit Karma consolidates all of your credit card accounts and any outstanding loans you have, making it easy to track your debt. It also provides you with a way of quickly seeing if anything looks out of line. Perhaps most importantly, Credit Karma shows you every factor that goes into your credit score and gives you suggestions on how to improve. Based on your profile, Credit Karma will also suggest favorable credit cards and financing offers. Lastly, a new service they have is a savings account that currently earns 0.52% APR.
The PocketGuard app is a must-have for anyone looking to limit overspending. And if you are saving for a down payment on a house, this app is guaranteed to help you reach your savings goal faster. Like Mint, PocketGuard can link up all of your financial accounts and track your spending. It also tracks your earnings. PocketGuard will track every one of your bills and will actively look for ways to save on them. For example, the app will notice the recurring bill from your cable company and show you better deals on those services.
Similar to PocketGuard, Truebill will track your subscriptions. But Truebill goes a step further by canceling them for you. With Truebill, you can also start a savings account and track your spending.
Eat Less Takeout, Use Food You Have
On our list of seven ways to drastically cut your expenses is one of the most cited tips for saving money. Every time you go out to dinner, you not only spend money on an expensive meal, along with a tip, but you also use gas and put miles on your car. Those may not seem like large expenses, but they can add up faster than you think.
Even when you order food from an app, you are usually paying a service fee on top of a tip for the driver. Instead, try to make meals out of the food already in your home. You likely have meals waiting to be made with a little nudge of creativity.
Sell Your Stuff
It has never been easier to sell old items you no longer have a use for. Look around your house for electronics that are no longer being used, a chair you bought but never found the right space for, or presents you accepted with a smile but secretly had no use for.
If you want to make a major impact, consider selling your car. If you own your car outright, the amount you could sell it for will represent a large chunk of your down payment. And if you still owe money on the car, by selling it, you will be reducing your debt, which will come in handy when determining the terms of your mortgage.