How To Save For A Down Payment On A Home
A down payment on a home is a major savings goal. You might feel like it’s a huge financial mountain to climb. But using these simple strategies can help you save the funds you need without breaking your budget. Just remember that all your saving will pay off when you buy your home!
Decide how much you need to save
The first step is planning. If you can, plan to put the traditional 20% down on your home purchase. By putting at least 20% down, you will avoid Private Mortgage Insurance (PMI). Even if you can’t get to 20%, try to save as large of a down payment as you possibly can, because this is money that you won’t need to finance and pay interest on in the long run. There are also home loan programs like FHA and USDA loans available for smaller down payments, but the long-term costs may be higher.
- Private Mortgage Insurance (PMI) protects the lender in case you can’t make your payments and is an additional amount on top of your monthly loan payment.
- PMI is also affected by the amount you put down. For example, 15% down will have a lower monthly PMI amount than only 5% down.
Tighten your monthly budget
Focus on your savings goal and reduce or eliminate every monthly expense you can. This doesn’t mean you have to live like a monk, but you do need to make an effort to trim costs as much as possible.
- Stop eating out. Learning to cook could be the most wallet-friendly thing you ever do. If you spend just $25 a week on eating out, that’s over $1,000 a year that you could be saving. It’s probably healthier to eat in as well!
- Drop cable or satellite and reduce streaming services. Streaming subscriptions can be a cheaper alternative to cable TV. But you may not be saving as much as you think if you have more than one premium streaming service. Consider cutting back to a single streaming service.
- Stop buying new clothes. It’s difficult to get out of a shopping habit, but your budget will thank you. If you can postpone wardrobe upgrades during this key time it can really help your savings to grow.
Find a side hustle
A side hustle is a second job or other source of regular income that you can use to supplement your savings. It could be part-time employment with a local department store. Or you might make and sell niche crafts in an online marketplace. The sky is the limit with side hustles, so find something you actually like doing.
- You might be able to find a second job that uses the skills you’ve developed from your day job, or you could use a second job as a chance to try something completely different.
- Low unemployment rates mean businesses have a harder time filling positions, especially part-time positions that make the best side hustles. You may not need to look far to find a company in need of part-time help.
- If your current home or rental unit has an extra bedroom, you could look for a roommate as a source of secondary income. Be careful with any limitations about subletting if you currently rent and decide to go this route. You’ll also want to be honest with a potential renter about your intent to move in the long term.
Scale back your retirement savings
If you need to grow your savings fast, you could consider diverting some of your retirement money into your down payment fund. This is not a good idea in the long term, but if it gives you the extra funds you need to launch your home buying plan in the near future it can work.
- You’ll need to already be saving for retirement to redirect the funds. If you’ve never been that serious about retirement savings, or if you were already directing your funds toward another goal like student loan debt instead of saving for retirement, be sure to evaluate your long-term plan so you don’t sell yourself short.
- Don’t forget to crank your retirement savings back up after you’re done saving for the down payment. It can be tempting to look at the expenses of owning a home and think you’ll need the money for maintenance, but getting your retirement plan in place earlier is always better.
Look for cash from any opportunity
Scrounge around and try to find extra cash to boost your savings. Think of all the one-time things you might be able to do to grow your down payment fund.
- Sell your personal items through online sites or at a garage sale. This can be a great way to reduce the burden of moving at the same time.
- If you get a raise at work, save that cash in your down payment fund instead of keeping it with your other earnings.
- Scale back vacation plans. While all-inclusive beach resorts make for great social media photos, the reality is that you can often get the same mental benefit by taking a stay-cation without leaving your local area.
Ultimately, there is no magic formula for saving for a down payment on a house. Everyone’s financial situation is unique. But by using a few of the tips above, you may be able to build your savings a little faster and move in to a new house sooner. The most important part is having a plan and sticking to it. Happy saving!