Saving for A Deposit

If you want to own your own home then you will need to start off by saving for a deposit towards it. A deposit is a down payment that you put on the home so that you can borrow the rest of the cost of it. Mortgage companies require it so that they do not have to risk lending the full value of the property and it shows that a borrower is capable of handling money well, which gives them confidence that they will be able to cover the repayments each month.

How much to save?

Knowing how much to save can be quite difficult. If you save lots, then you will either be able to afford a more expensive house or not borrow so much, however, saving less means that you can move in sooner and stop paying rent, which tends to be dearer than mortgage repayments. It might be worth doing some calculations and work out whether it is cheaper to carry on paying rent and save up for a larger deposit so you can take on a smaller mortgage or move in more quickly, with a bigger mortgage and start saving that rent money. As rent tends to be dearer than a mortgage for the same size of property then moving in more quickly might be a cheaper option but bear in mind that when you have a mortgage you also have to take out life insurance and buildings insurance and perhaps even some short term loans to tide you over, which will add to the costs, so factor those in as well. Also you need to note that when you do move, you will not only have to consider the cost of the deposit but also pay the solicitor, for a survey and removals.

Your Situation

It is also worth thinking about your situation. You may prefer to buy a larger house if you can and so if you have a larger deposit you may feel that you would rather use it to secure a bigger property than borrow less money on a smaller one. This could potentially lead to you taking on a home which is expensive to run and may have higher mortgage repayments and this could mean that you are less able to manage or have to go without other things in order to afford it. Consider whether this might be a temptation for you and if so, it could be better to buy an affordable home as quickly as you can.

Be a Good Saver

If you are not a good saver and like to spend money, then again it could be sensible to use your deposit as soon as you have enough. This will eliminate nay temptation that you have to spend it on other things. It is also worth remembering that even if you do not pay off a big chunk of the house when you first buy it, if you have a flexible mortgage then you could be able to pay off a little extra each month and then still end up owing less and you may be able to pay it off early. This can be a great way to save money in the long term as if you pay off the mortgage early you will save a lot of money by no longer paying interest on the loan. These overpayments are optional and flexible which means that you only have to pay them when you can afford to and therefore if you do have extra expenses, you can stop doing it. However, as you have paid extra off the mortgage, you will still be saving money in interest. With some accounts you are able to draw overpayments back out as well, which means that if you do need money for something, then you can get hold of it. Obviously you will owe more and have to pay that interest, but you will have saved interest for some of the time and this will still help the overall cost of you loan to be lower.

Buying Your House

So it could in fact be better to save the minimum amount and buy that house as soon as possible. Then you will be free of paying rent and it is likely that you will be paying out less each month, even when allowing for insurances, than before. Do bear in mind the cost of any work that might need doing in the house and an extra items that you may need to buy when you move in and make sure that you have enough money put by for these as well as for a deposit.