Although the COVID-19 pandemic has put somewhat of a damper on the Spring 2020 homebuying season, many prospective buyers can take advantage of a slower market and lower interest rates to snap up the perfect property. But before you begin shopping in earnest, there are a few steps you should take to accelerate your savings rate and put away a down payment more quickly. Read on for three tips that can help you save for your first home.
Assess Your Budget
The first, and arguably most important, step in saving for a home is to seek out preapproval from a lender to get a better idea of just how much house you can afford. During a preapproval, the lender will evaluate your income, credit score, and payment history to determine the maximum amount they'll be willing to lend you. Once you have a range in mind and have evaluated how much your mortgage payment will set you back each month, you'll be able to look at houses within this price range with financial confidence.
Check Your Credit Report
Another important step in the savings process involves getting a copy of your free annual credit report. Mortgage applications can require a tremendous amount of paperwork, and a single missed payment or maxed-out credit card in your past can mean the difference between qualification and rejection. But credit reports aren't foolproof, and there may be information on yours that is outdated or inaccurate. It's only by getting a look at your credit report that you can begin the process of correcting mistakes.
Knowing what your credit report reveals can also guide you on the credit-boosting actions you can take while shopping for homes. Something as simple as paying down a credit card to reduce your utilization rate or opening a new type of credit account can increase your credit score, improving the caliber of loans for which you can qualify.
Make Mortgage Payments to Yourself
Regardless of whether buying a home is going to significantly change your housing budget, one simple way to save money is to pay your mortgage each month—to yourself. By setting aside your estimated mortgage amount in a savings or money-market account, you can get a good feel for what your new housing payment will be like while painlessly accumulating down payment funds.
If setting aside the entire mortgage amount just isn't a workable option for your household, you can instead save the difference between your current rent payment and what you'd expect to pay for a mortgage. Either way, subscribing to the "pay yourself first" mentality can provide you with flexibility and increasing savings in an unprecedented real estate market.
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