Buying a house is one capital-intensive project, but homeownership options like a mortgage have lessened the financial burden. By giving you a major part of the money to purchase your dream house you can achieve your financial goals early.
However, the bank or any other lending institution will require you to deposit at least 5% of the value of the property. If you're wondering how to go about raising the house deposit, here is the best approach to saving for a house deposit.
#1. Set a Savings Goal
The first step to saving for a house deposit is to set a savings goal. To enable you to set an accurate goal, you should have the type of house you want to purchase in mind, the cost.
Another important piece of information is the details of the mortgage including how much you'll need as a down payment, some mortgages require up to 25% of the house cost.
This information helps you know exactly how much you are saving for a house deposit.
#2. Create a Budget
A budget is one of the most effective tools for reaching your financial goals. It helps you to commit to your savings goal alongside tracking your spending.
There are different techniques you could use to create a budget, including the 50/30/20 and the 80/20 techniques. The 50/30/20 budgeting technique requires you to divide your income into 3 parts in percentages: 50%, 30%, and 20%, where 50% goes to your needs, 39% to your wants, and 20% to savings.
The 80/20 technique requires you to share your income just into two in the percentages of 80 and 20. You allocate 80% to every other expenditure while you set 20% out as savings. To create a good budget, you should be aware of your:
● Needs: essentials for life or things you cannot do without. Examples are food, shelter, and clothing.
● Wants: things like a gym membership, hanging out with friends fall into this category. They are things that you can do without.
#3. Open a Savings Account
You need a savings account to throw in the money you set aside each month as savings. Gladly, financial institutions don't just offer security for your money but also help you increase your money through interests.
For saving for a house deposit, here's a tip: go for savings accounts that offer higher interest rates to boost your savings significantly.
A lifetime ISA is a special account that is designed to enable UK residents to buy their first home (worth £450,000 or less) or save for retirement. Unlike a regular savings account where you pay tax on your interests for large sums, it offers you tax-free interests.
In addition, the government gives you a 25% bonus (capped at £1000) each year. Lastly, this account helps you to stay true to your savings goal by including a penalty for withdrawing your money for any other purchase. You can open a Lifetime ISA if you're within the ages of 18 and 40.
You could also invest your savings in high-return investments like stocks. But, before you step out, you need to learn how to invest in stock especially if it's your first time.
#4. Cut Down on Your Expenses
Reducing your expenditures to the bare minimum can be another way to hit your goal of saving for a house deposit. And, this will most likely be super easy now that you've identified your wants or unnecessary expenses via your budgeting process.
You can start by doing away with them (for those you can forgo) and making adjustments on the others.
You can find cheaper alternatives to things like a gym membership, you could tag along with friends in your neighborhood for workouts or workouts in your home. That may save you up to £1000 a year.
The goal here is to curb excessive spending and channel the money to saving for a house deposit.
#5. Boost Your Income
If you have any idea on ways to increase your income this may be the best time to implement. Doing more than one job is now very achievable in today's world with the availability of online jobs.
There are tons of services you could provide online and make money, these include selling products, freelancing, participating in surveys, etc.
The good thing about most online jobs is that, unlike the regular office job, you could work at your pace.
They are flexible, allowing you to combine them with your offline job. However, if you wish to start a business, check some of the best businesses to start in 2022, and here is a guide to help you start.
Conclusion
Saving for a house deposit can be seamless if you commit to the right financial practices. These 5 steps are among the best, so now you can start saving for a house deposit out rightly.