How To Save For A House (Plus EVERYTHING else you'll need to know)
Lets get back to the basics in terms of saving enough for a down payment to buy real estate, what you’ll need for lenders to give you money, and some things to prepare for before you start buying a house. Enjoy! Add me on Instagram/Snapchat: GPStephan
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It begins with the following:
Good credit - Anything above a 740 generally gets the best rates.
2 years worth of tax returns - This shows that your income is consistent and that you’ve built up some work history.
Bank Statements and proof of income for the last 2-6 months - this way you can prove how much money you’re actually making and spending. With that, they can calculate what your debt to income ratio is - banks prefer those who save a lot, and spend very little.
Cash reserves - sometimes it can be 3-6 months of mortgage payments, taxes, insurance, and a buffer in liquid cash or assets.
Pretty much any time you buy real estate, you’ll need a down payment. Banks want to see that you have your own money at risk when you buy a house…this down payment forms your initial equity in the property. Generally 15-20% down is about what I’m seeing.
If you don’t put down 20%, you’ll generally need to pay PMI which stands for private mortgage insurance. This is an extra cost that helps assure the bank you’ll be making your payments, since the less money you have in the deal, the higher the risk is that the bank will lose money in the event you foreclose.
If you can qualify lower down payments and the numbers make sense, go for it. But in more expensive markets, you’re going to need more money down. Some other options might be available like a VA loan where you can buy with 0% down - so this will be up to you figure out what’ll be best.
When saving for a property, it’s really about setting your priorities and deciding what comes first - if buying a property is your number one priority, it might make sense to cut back in other areas just for the sake of accomplishing this.
What I use that helps a lot is Mint.com and PersonalCapital.com - I use these to track all of my expenses. You need to know where every penny is spent and exactly how much you earn. It’ll be nearly impossible to save as much as you can without doing this.
One other strategy I like to use is to automate my savings. I have one bank account where all of my money is deposited and saved - this is Ally Bank. Then I have a Bank of America account for my expenses. I’ll only transfer a certain amount of money every month to bank of America, this means that everything else I have is pretty much already stashed away.
Finally, generally banks won’t want the mortgage payment to exceed about 44% of your total income after expenses.
Again, with this, it’s all cutting back as much as you can. You really have to make this a priority to save as much as you can.
Now for those who just don’t earn much money in the first place, the reality is that you’ll need to either cut back on your expenses as much as you can and save the difference - or work to increase your income. There’s no way around it, there’s no way to sugar coat this - if you’re not earning enough money, you’ll need dedicate yourself to making more money. This is one of those things where if you want it bad enough, you will somehow find a way to make it happen.
Now one more thing I do when it comes to saving is to keep it all in a high interest savings account. Most people want to invest it, although in the short term, there could be too much volatility to risk it in the markets.
Ultimately, when saving up for a down payment, it really just comes down to income vs expenses - and once that’s handled, banks will look at the bigger picture to determine what you’d be qualified to receive. And patience and discipline here goes a long way - you will need to do this long term consistently.
For business inquiries or one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com
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