This is a collaborative post.
Mortgages are quite scary things that feel as though they lock you into debt for decades. Technically, they do just that, but it’s good debt because you get a house out of it!
For the majority of the population, this is the only way you’d be able to afford a house of your own. Without mortgages, you’d need to save a hell of a lot of money – most people would fail to do this in their lifetime. Or, you’d finally be able to buy your house when you’re in your 60’s!
On that note, mortgages shouldn’t be looked upon negatively. They’re here to help us, but that doesn’t mean the prospect of getting one isn’t daunting. Primarily, you worry about how you will save for a mortgage loan. How much do you need to save? Why do you need to save? Both of these questions will be covered in this guide, along with some steps to help you save money to buy your dream home.
Why do you need to save money for a mortgage?
Hang on, aren’t mortgages designed for people that can’t afford to buy a home outright? Why do you need to save up for one if it’s essentially just a loan? Surely you can just apply and be approved or not? Well, you need to save money because you’re required to put a deposit down to secure the loan. This basically locks you into the mortgage and ensures that you commit to paying it back. It’s also a way for lenders to see if you can afford the mortgage or not. If you fail to raise money for a deposit, then you won’t be able to keep up with regular mortgage payments. Thus, they deny your application.
How much do you need to save?
This is an essential question as it determines the figure you aim for. Generally, a 5% deposit on a house is seen as the industry standard for first-time buyers. This means you need to save enough money to cover 5% of the home’s asking price. However, you’re free to pay a bigger deposit if you want! The larger the deposit, the lower your mortgage will be because you need to borrow less money. So, many people think about saving up for a larger deposit to cut the costs of a mortgage over time. The choice is yours; do whatever is within your financial means.
How do you save for a mortgage?
This brings us to the big question: how do you save up for a mortgage loan? To begin, you have to figure out how much you need to save. As mentioned above, this relates to the deposit you wish to put down. It’s worth working with companies like Think Plutus that act as a broker to help you find all the different mortgage deals. This way you can identify the best option, work out your deposit, and get ready to save. From here, you can follow a few simple steps to help you save more money every month:
Create a monthly budget
Firstly, go through your finances and create a budget for each month. This will provide you with a breakdown of how much money you should spend. It will include all of your essential expenses, along with the other things you buy every month. In doing so, it lets you figure out where you can spend more money. For example, your budget may show that you can save a fortune on food with a few simple tricks. Therefore, you put this money aside in a savings account and gradually build it up over the months. It all starts with a budget, and there are loads of budgeting apps you can use to work out where and how you spend your money.
Set saving goals
Saving money is a lot easier when you have goals to aim for. Now, you can go about this in a few different ways. Some people set weekly saving goals; others set monthly ones. It really depends on how you want to approach it. With a monthly saving goal, you have more flexibility throughout the weeks. Let’s say you don’t save much in one week, you have a chance to make up for it in the following weeks. For me, this is the best approach, as weekly goals can sometimes put more pressure on your finances. Regardless, the goals give you figures to aim for, which will help you reach your overall target as quickly as possible.
Review your bills
When you create your budget, you’ll come across all of the monthly bills you pay without fail. Some of these are far more important than others – you need to pay an energy bill, but do you need multiple streaming bills? Review all of your monthly bills and get rid of those that aren’t essential. Or, look at cheaper alternatives to help you save money. If you have any contracts coming to an end, don’t sign back on with the same provider straight away. Shop around, look for better deals, then choose an option that costs less. This will help you save money every single month without fail.
Make the pennies count
These days, you can find countless money-saving apps that use the same technology. In essence, these apps connect to your debit/credit cards and will help you save money with every purchase. When you pay for something, it gets rounded up to the nearest whole number, with the remaining money going into a savings pot. For instance, you spend £2.50 on a coffee, it gets rounded up to £3, and the 50p is saved. You’ll be stunned at how much money you save every week by doing round-ups like this. I know that Monzo does something like this, and so do apps like Moneybox.
Hopefully, this makes mortgages clearer for all of you. You should know why you have to save for one, how much needs to be saved, and how you can go about it. Don’t rush; take your time and save all you need to ensure you can apply for a mortgage and buy your dream home.