Saving for a new house may take years, and a pandemic may understandably slow down the process. As you adjust to a new way of life amid the spread of COVID-19, putting money toward a new home may not be your top priority. However, with careful spending and saving, you can ensure the uncertain times don’t interfere with your home buying plans.
Whether you’ve already started saving for a down payment or are ready to start your savings now, here are four ways you can stay on top of your goals, even during a crisis:
Determine Your Buying Power
Before saving for a down payment, you should have an idea of how much house you can actually afford. You can do this by calculating your mortgage, estimating your monthly payments, and then adding that amount to your recurring monthly expenses.
You’ll need to factor in your income, outstanding debt and monthly expenses, and any funds you’ve already saved up. You should also plan to have at least three months’ worth of mortgage payments and household expenses in reserves for any unplanned costs. Once you’ve figured out your buying power, you’ll be able to focus on properties that fit your budget and adjust your savings strategy accordingly.
Understand Your Financing Options
Most homebuyers expect to front a down payment of at least 20% of the home’s value. While this may be the case for some conventional mortgages, there are also financing options that help make buying a home more feasible during a crisis. Understanding your options will help give you a better idea of how much you actually need to save.
If you are looking to buy your first home, you could participate in a first-time homebuyer program which could help you secure a low down payment mortgage. A Federal Housing Administration loan, also known as an FHA loan, may also be an attractive option, especially during economic hardships, as it only requires a down payment of 3.5% and is easier to qualify for, even if you have a lower credit score.
Maintain Your Credit Score
Your credit score plays a critical factor in your loan eligibility, which is why it’s important to keep up on monthly payments and continue paying down debt whenever possible. A healthy credit score could mean more favorable loan terms and lower interest rates, so make sure to check your credit report on a regular basis and address any inconsistencies to increase your chances of loan approval.
Some lenders offer relief programs to those whose finances have been impacted by a crisis. If you have experienced a change in income or employment as a result of COVID-19, you should contact your lender to see if you can temporarily lower your monthly payments or interest rate, or waive late fees without impacting your credit score. That way, you can redirect more into savings without your score taking a hit.
Reallocate Your Money
With establishments still closed for the pandemic, you’re probably spending less on activities like shopping or going out to eat. This presents a great opportunity for you to redirect this money into your home savings. If you have enough money to comfortably support your living expenses, consider putting a few extra dollars toward your down payment.
Your stimulus check may also help boost your savings if you’re strategic with your spending. To make the most of these funds, consider putting a portion into a high-yield savings account, using it to pay down outstanding debt, or adding it to your home savings account. While $1,200 won’t cover the entire down payment, it could help bring down your home buying expenses substantially.
The pandemic doesn’t have to throw a wrench in your plans. With these tips, you can assure you’re on top of your financial goals and ready to navigate the home buying process with ease.