10 Tips to Help You Save for a Down Payment
Spring is a time for new growth and change – it’s also a great time to set new goals, particularly financial goals. And if you are like many Americans, one of your most important financial goals might be buying a house.
Traditionally, a typical down payment for a home would be 20 percent. This means that if you wanted to buy a house that costs $500,000, then you would need to be able to make an initial payment of $100,000, plus any additional closing costs. This large down payment requirement, undoubtedly, has kept some people away from their dream of becoming a homeowner.
Today, the down payment requirements for buying a home are quite a bit different. Depending on your mortgage lender, you can likely get home with just a five percent down payment, sometimes even less. Lower down payment requirements have helped expand the possibility of homeownership—getting your first home might be much more affordable than you initially assumed.
Regardless of whether your down payment will be large or small, it is important to come up with a plan. If one of your goals for this year is to save up for a home, be sure to keep these ten helpful tips in mind.
Create a Set Goal
As you begin saving for your future down payment, it will be helpful to have a general estimate of how much you’ll need to have saved. If you are saving with a specific number in mind—rather than just saving “in general”—your savings goal will not only seem much more attainable, but you will also be much more likely to maximize your contributions.
If you’re not sure where to start, it may be helpful to connect with a Mortgage specialist. They can help to determine a realistic budget – and, in turn, estimate your required down payment – based on your goal timeline, available loan options, financial status, and more.
Make Consistent Contributions
Saving for a big financial goal, such as buying a home, can be overwhelming. Rather than trying to achieve your goal in just a few large chunks, consider making regular contributions. Even if you are only putting aside a few dollars each paycheck, you’ll be able to continue making steady progress over time. Before you know it, all of those little contributions can add up to a whole lot.
Add a Side Hustle
If you can find a second job, you’ll naturally be able to increase your current income—and if you can dedicate all of this income to your current savings project, you’ll be able to save up for a down payment much quicker. Just be sure to stay disciplined and avoid allowing your new income to inflate other life expenses.
Minimize the Cost of Debt
Debt can be very expensive and can quickly create a heavy burden on your financial life. If you can find ways to minimize the cost of debt, whether that means refinancing, consolidating, paying off debt, or restructuring, you’ll be able to make your down payment sooner. Focus first on higher-interest debts, since those are costing you the most additional money.
Implement Automated Savings
When savings are automatically withdrawn from an account, it becomes much easier to remain consistent with your contributions. Most banks and credit unions make it easy to automatically contribute to your savings using a schedule of your choosing. If you receive direct deposit from your job, you may be able to set up your regular paycheck to be deposited into multiple different accounts, including one designated for savings.
Cut Out Your Vacation
A recent study revealed that the average cost of a one-week vacation costs about $1,600 per person—or more than $6,000 for a family of four. While vacations are nice, they can certainly get in the way of other expensive personal goals. Putting off your vacation by just one year can help you move into your dream home much sooner. Try having a “Staycation” instead, and use your time off to check out some local attractions.
Sell Low-Return Investments
If you have a lot of your capital tied into low-interest investments—including bonds, CDs, and others—you could effectively be losing wealth over time. Transferring these investments into a home down payment, on the other hand, will empower you to begin growing your wealth sooner than would otherwise be possible.
Utilize a High-Yield Savings Account
A high-yield savings account is a type of savings account offered by banks and financial institutions that typically pays a higher interest rate than a standard savings account. These accounts are designed to help individuals grow their savings faster by offering a competitive interest rate on the balance held in the account.
The interest rate for a traditional bank savings account typically starts at around 0.01%, vs a high-yield savings account that can be as high as 5%. That difference in interest rate can be a gamechanger for your accrued savings over time. For example, if you have $5,000 in a traditional savings account (at .01% interest) , you’ll make about $0.50 in interest over 1 year. The same $5,000 in a high-yield account would earn $255 (at 5% interest).
Get a Co-Signer
If you are worried about making a down payment, you may want to consider purchasing your home with a co-signer. This could be a partner, a parent, a friend, or anyone else that you trust. While you will want to be sure to understand the rights, restrictions, and responsibilities that come with co-signing, it may be the best way to bridge the gap between where you are and where you want to be.
Do a Total Budget Overhaul
While you probably already feel that you are pinching for pennies at the end of each month, there are still probably quite a few things you can do to improve your monthly budget and increase your ability to save. Take a moment to look at every item on your most recent bank statement and try to see if you can find any wiggle room.
Conclusion
Saving for a mortgage down payment can certainly take a bit of time. However, by keeping these useful tips in mind, you can begin moving in the right direction.