Expert shares top five tips for first-time buyers saving for a deposit

The idea of ​​owning your own home is a big goal for many people – but the path to home ownership can be paved with financial challenges. One of the biggest hurdles is saving enough money for a deposit.

In today’s competitive real estate market, financial preparation is crucial for anyone who wants to own their own home. Jason Higgs, Senior Deals Strategist at Bountii, says that while the task may seem daunting, with the right strategies and discipline, anyone can do it.

According to financial expert and best-selling author Suze Orman, the biggest mistake most people make when buying a home is “not saving enough for a deposit.” Saving for a deposit is one of the biggest hurdles for first-time home buyers.

A 2020 report from the National Association of Realtors found that 13 percent of all buyers said saving for a deposit is the most difficult task in the home buying process, and 26 percent of first-time buyers reported that the deposit is a difficult obstacle to overcome. However, with the right strategies and discipline, you can overcome this challenge – here’s what Jason recommends.

Create a realistic budget and stick to it

Creating a detailed budget is crucial to saving effectively. Jason said: “Start by tracking all your income sources and expenses for a few months to get an accurate picture of your spending habits. Categorize your spending into needs like rent, utilities, groceries) and wants like dining, entertainment, memberships.”

This will help ensure you save enough for an appropriate deposit percentage (eg 20% ​​to avoid private mortgage insurance). Also, review your credit report and work on paying off debt to improve your credit score, as this affects the mortgage rates and terms you’ll qualify for.

Look for areas where you can cut back on non-essential spending and redirect those funds to savings in storage. You can also use budgeting apps or tools to simplify the process and stay accountable.

Automate your savings

One of the most effective strategies is to automate your savings so that money is transferred before you can spend it. Automating your savings can help eliminate the potential temptation to use the money elsewhere and ensure you’re making consistent contributions to your goal.

Jason added: “Set up automatic recurring transfers from your checking account to a dedicated high-yield savings account for your deposit. Many banks allow you to split your direct deposit, sending a portion directly to savings.”

Calculate how much you need to save each month to reach your deposit goal by the target deadline.

Explore warehouse assistance programs

Many places offer deposit assistance programs to make ownership more affordable. These may include grants, forgivable loans, tax credits or savings incentives.

Requirements vary, but often target first-time buyers with low to moderate incomes or those buying in certain neighborhoods. Understanding your options can help guide your deposit savings goal and the mortgage amount you’ll qualify for.

Jason said, “Find programs that fit your specific needs and situation based on your location, income level and home buying details. By taking advantage of this assistance, you can significantly reduce the amount you have to save on your own.”

Increase your income

In addition to cutting expenses, increasing your income through side gigs or freelancing can accelerate your stash savings. Ask for a raise at your current job, citing your accomplishments and the average salary for your role. Or explore higher-paying job opportunities that better align with your earning goals.

Jason added, “Look for opportunities that fit your skills and schedule, such as freelancing, mentoring, co-managing, or selling handmade products online.”

Any additional income earned can be channeled directly into your deposit fund. This can give your deposit savings a final boost without overstretching your regular budget in the long run. The extra income could also help boost mortgage approval.

Manage your credit score

Your credit score plays a major role in the mortgage rates and terms you qualify for. A higher credit score can lead to a lower interest rate, saving you thousands over the life of the loan.

Jason said, “Pay all bills as soon as possible, keep credit card balances low and check your credit reports regularly for possible errors or fraudulent activity that could affect your score. As you get closer to buying a home, avoid opening new credit accounts or making large purchases that could hurt your score.”

Even a small reduction in your interest rate can save you thousands over the life of your loan. Avoid opening new lines of credit in the months before you apply for your mortgage.

As you embark on your journey to home ownership, remember that saving for a deposit is a marathon, not a sprint. Jason added, “With patience, discipline and the right strategies, you can achieve your dream of owning a home.”