Category: Mortgages

Mortgages

How Much Deposit Should you save for a Mortgage?

If you want to buy your own home then you will be most likely to need to borrow the money to pay for it. This tends to be done using a mortgage. However, to show that you are capable of making repayments and to provide some equity in the home, the lender will usually ask you to pay a deposit. This means that they want a sum of money put against the home from you before they will lend the rest of it to you.

Most lenders will want a certain percentage of the value of the home. There used to be a time when it was possible to have a mortgage with no deposit or a very small one, but these days a lender ill normally want about 10% of the property value. This can be a large amount of money if the property is really expensive and it can be hard to save up. However, once you have taken out the mortgage, you will have to make the repayments each month and so you will need to be used to spending out extra each month and you can use the amount that you were saving towards the deposit as your repayment amount.

May people will just save up the minimum deposit or if they do save more only pay the minimum deposit. However, it could be wise to pay more if you can. This can have a number of advantages. Firstly it will mean that if, for any reason, you need to sell the house quickly and its value has gone down, you will have enough equity in the home to still be able to repay the mortgage with the proceeds of the sale. If your deposit is small you may not have enough and could be in trouble. Also you need to consider that your mortgage is expensive and every penny that you borrow, you will have to pay interest on. This means that if you pay a higher deposit then you will not have to borrow so much and this could help you to pay less in charges for your mortgage. Of course, some people may use a higher deposit to be able to buy a more expensive house and therefore not have an effect on the cost. This is another big advantage of saving a larger deposit. It means that you have more choice when it comes to picking a property and you will be able to get something bigger or in a better area or both, should you decide to borrow the maximum amount that you can.

Deciding the specific amount can be tricky when you first start saving. You will not know what sort of price the home you are intending on buying will be and so it can be hard to set a savings goal. However, it will not hurt to take a look at the housing market and see what the average house prices are. Then you will be able to get some sort of idea as to what things cost and ow much you need to save. Then you should set yourself a goal of saving a certain amount each month. Consider when you want to buy a home and how much you will need to save up each month to be able to afford it. This could be more than it is possible for you to save. However, it is worth considering where you can cut down your spending to help you to save more. You could also think about whether there are any ways that you could earn more money. You could do more hours at work, ask for a rise, sell things, start a business or do some freelance work. There are ways to earn online and offline which could help you out but you will need to check with your employer to make sure that it is okay for you to get a second job.

You may feel that you want to keep some savings to fall back on and so not pay everything that you can afford into a deposit. However, it could save a lot of money if you do this and you can always borrow if you really need to but the chances are that you will not need to and will save a lot of money as a result of paying a higher deposit.