Newly married couples need to prepare for the large expenses ahead, including those associated with the home buying process. This is most often their first home buying experience, making it important to understand the expected – as well as unexpected – expenses of home buying, including the first step: saving for a home down payment. Here are five simple strategies to save for your first home down payment:
1. Clean up your credit.
This is the most important thing you can do when saving for your first home down payment, because part of your interest rate on your home is determined by your credit score. A lower credit score may result in a higher interest rate.
2. Pay your bills on time.
Make sure to pay your bills on time, not just before you apply for your home loan, to make sure your credit score does not decline because of overdue bills. This connects hand-in-hand with the first strategy, cleaning up your credit score, to keep interest rates low.
3. See what you’re pre-approved for.
Before taking any major steps into home buying, visit with your local MidWestOne banker to see how much money you would be pre-approved for on a possible home purchase. It will also give you some information on how much you will need for a down payment. Knowing this information upfront can help with the next strategy, creating a budget.
4. Create a budget.
From this point, start a budget using the pre-approval amount as a baseline. During this stage, it is also valuable to become familiar with loan programs, such as IFA (Iowa Finance Authority) program or any other applicable MidWestOne loan programs. With your pre-approved amount in hand, sit down with a MidWestOne banker to sketch out your budget. This should also include trimming your expenses where possible.
5. Recognize the differences between renting and owning a home.
There are many differences between renting and owning a home, including all of the extra expenses incurred as homeowners. Most first-time homeowners underestimate the additional expenses that come with home ownership because those expenses have always been someone else’s responsibility. A non-working furnace or water heater, or the need to replace the air conditioner can be very expensive.
Prepare for these extra expenses by budgeting money into a savings account before purchasing a home, so if a repair is needed, you don’t find yourself in a negative financial position. This allows you to have a cushion of money to fall back on. Start putting yourself in the “saving mode” prior to purchasing, so you will be comfortable knowing you can manage those extra expenses without going under.
Combining these simple strategies is the best way to efficiently save for your first home down payment.