There are a few options in fulfilling the American dreaming of getting a home. One is to save money, and the other is to borrow from a mortgage company. One choice may be better for some than the other, depending on an individual’s situation. Therefore, deciding between these two options needs careful thinking and consideration.
Why Save Up Before Buying a Home
Some people save up before buying a home because they do not want to add more debt through interest. Others pay through cash because cash upfront gives a buyer bargaining power; a buyer with money on hand can negotiate for a lower price. Meanwhile, others save for a down payment so that they get to pay for a smaller loan.
NextAdvisor, in partnership with Time, advises on saving for a downpayment. As the highest upfront cost for buying a home, an individual must know the closest estimate of the amount they will put down. This is necessary for developing a plan to save up for the down payment.
Additionally, one can research the location of a potential property and get an estimate of the house prices in that location. It can also give one an idea of whether to buy a more extensive property or downsize based on budget. Moreover, one must consider the monthly mortgage and include it in the savings plan.
Overall, planning for what you want to pay upfront and what you need for monthly payments is necessary when saving for your dream home.
Think long term
Saving for a home is something you have done for a long time. It takes years to save up on a home, and it is a process that cannot be rushed. Additionally, as buying a home may happen years later, you must consider the kind of lifestyle you may have when it’s time to buy a home. This is necessary to determine the type of home you want to buy in the future; the amount you need to save comes with it.
Monthly income must be considered when saving for a home. Deciding how much one can allot to savings after calculating all the monthly expenses is necessary. Calculate the amount of money you bring in versus the amount of cash you need to spend. Factor in the number of your credits and debts, too.
Being intentional in where your money goes is the most significant factor in saving up for a home. Immediately put your money into your saving account allotted explicitly for the house, so you don’t touch it. Don’t wait for the savings at the end of the month; chances are there will be none.
Why Borrow for a Home
There are several reasons why a person chooses to go into debt. One reason is urgency. For example, a broken refrigerator needs immediate replacement, and one may need to use a credit card to purchase a new one.
Another reason is exceptional sales opportunities; some may offer special discounts at the moment; purchasing items now than saving, and buying these items later may be more brilliant. Moreover, there are periods when companies offer low-interest rates. It may be wiser to take advantage of the offer now than later.
Additionally, certain purchases appreciate; buying it now is brilliant because, later on, it will cost more. Such assets include house properties. Over the years, houses have appreciated. Years later, you may not find the same price for the home. At the same time, when you decide to sell your home, chances are you will get more than what you paid for years ago.
This is the reason why people decide to borrow money to buy a home. These people think of their long-term gain.
The Bottom Line
The easiest way to decide whether to save up or to borrow is urgency. Do you really need to buy a home, or is it smarter to wait for a few years?
It is often better to save up first before borrowing money for a home to prepare. Also, it is necessary to save and have enough money before getting a loan. Bloomberg advises that it’s easier to loan money when one has money. Banks find it more desirable to lend money to people who have the money because there are more chances to pay their loaned money back.
Therefore, it is also essential to plan to pay for the borrowed money when deciding on borrowing a home. Consider factors like your job or other sources of income; it is vital to look ahead and think if you have an abundant source of income to pay for your debt.
The best way to purchase a home is to combine saving and borrowing; you can save enough for a down payment and prepare monthly mortgage payments. This way, you can truly achieve the dream of having your own home.