Having a financial cushion is essential to face the initial payment involved in purchasing a home. Having enough savings to buy a home may be complicated, but it is possible with some time and a few basic recommendations.
4 Essential Steps to Save for a Home
1. Step One: Determine your budget
The starting point is to establish the budget for your dream home. It must be realistic. Sometimes, there is no choice but to adjust the aspirations to reality.
Knowing the real estate market and having an idea of the home price you want is fundamental. It will allow you to set the maximum budget and the amount required to face the initial payment.
2. Calculate initial costs
It shouldn't be difficult. In general terms, around 20% of the home value must get initially paid since banks don't usually offer mortgages for more than 80%. Although it may be possible to get a higher percentage of financing, it'll depend on the property and the specific situation -for example, if the appraisal value exceeds the purchase price-. That's to say that, when calculating your budget to buy a home, it is better to do it on the general rule so as not to have unforeseen events.
Besides, there are other expenses beyond the notary's office and the registry: the taxes. If it is a brand new construction, both VAT and the Tax on Documented Legal Actions (IAJD) will have to be faced. If it is a resale, the Tax on Patrimonial Transmissions (ITP) and the IADJ must get paid.
Both taxes may vary from one autonomous community to another. Thus, the IAJD can represent between 0.5% and 2% of the home value. On second-hand properties, the ITP represents between 5% and 11%.
For example, a €150,000 home located in Madrid with a €120,000 mortgage. If it were new construction, these expenses would reach around €16,500, and approximately €10,600 if it were a resale.
3. Adjusting the budget and automating savings
With the accounts on the table, it is time to start saving. Firstly, we've to calculate net income and expenses. It will allow us to know our saving and indebtedness capacity and, therefore, adjust the housing search.
The best way to get a financial cushion is to automate your savings. It's as simple as deriving a fixed amount each month to an account intended solely for the home purchase. For those who are a bit spendthrift, it is the best solution. We suggest doing an automatic transfer at the beginning of each month. That way, we'll adapt our expenses to the money available in the current account. Otherwise, there may be nothing to save at the end of the month or too little.
4. Other tips that will help you increase your savings
Although we've seen the fundamental steps, other recommendations also help save to buy a house. Young people who live for rent can apply for the youth rental bonus, an aid of €250 per month for two years. Dedicating that aid to home savings will be of enormous help.
Another tip is to review your expectations. Open your mind regarding the location or opting for a somewhat smaller home lowers the price and, with it, those savings necessary to take the first step. And there is always the possibility of looking for an extra income to help clean up or strengthen finances.
Taking time to look for that ideal home without rushing or being overwhelmed also helps. On Spainhouses.net, you have the best real estate offer. With the help of our browser, you'll find a home that fits both your wishes and your budget. Start looking for your dream home now!