Are you interested in purchasing a new home? Saving for a down payment on a house can seem like a daunting process but it can be done, and if you’re smart about it, you can save for a down payment on a house fast, to get into your dream home sooner.
Figuring out the size of your down payment is a crucial first step. The size of your down payment has many implications, including what your monthly mortgage payment will be and your initial home equity.
While there are many ways to save for a down payment on your new home, here are a few great tips and tricks that will help you save faster than expected!
Understanding Your Timeline
After figuring out how much you will need to save for your down payment – 20% is always the optimal amount to put down if you can, but many people can’t or don’t put down that much – create a realistic timeline to achieve your goals. For example, if you needed to save $40,000 for a down payment and you planned on buying a home within 5 years, you would need to figure out how to save $8,000 a year or almost $700 a month.
“Coming up with the cash needed to purchase a home can be one of the most overwhelming steps in the home buying process,” says Joanne Russell, President of The Mortgage Place in Clifton Park, NY. “Depending on the program that you qualify for, you may not need a down payment or maybe just a small one. You can also negotiate for seller concessions or lender paid closing fees.”
Consider if you are able to save the money you need for the down payment given your income and then adjust your original timeline to accommodate your specific needs.
Making a Budget
The most important part when starting to save money is to make a realistic budget. It is vital to understand and prioritize your expenses. For example, bills, rent and car payments have top priority when it comes to developing a budget. Creating a budget also allows you to assess your spending on other non-essential expenses such as designer clothing, lavish vacations, or getting Starbucks every day (that’s a $5 a day coffee habit!). Prioritize your spending when making a budget and stick to it.
“Make a commitment to be a saver,” Russell says. “Go through your budget and slash all the unnecessary expenses like dining out, extra cable channels (or cable at all for that matter), and those tall chai lattes. Put all of that savings into your house account. It will add up quicker than you think.”
Thinking about ditching cable? Choose options like Netflix or Amazon Prime instead; because, let’s face it, you probably don’t watch 90 percent of those channels you have anyway.
Track Your Spending
Writing down or logging all of the items you purchase can be a very eye-opening experience for many people. Tracking everything you buy, no matter how small, can show you if you are frivolously spending money and where exactly you can decrease your expenses. Even if you think you’re spending your money wisely, give this a try. Your findings many surprise you.
Not sure how to start? There are so many budgeting and personal finance apps and programs out there now to make it super easy for you. For example, Mint.com has been rated the best personal finance software available. The best part? It’s free! Mint.com checks your credit score, helps you budget your money, reminds you of upcoming bills, and even allows you to pay them through the app. It gives you the big picture like your network, and every little detail. LearnVest is another great online personal finance tool that provides free tracking for your spending habits, determining your financial goals and budgeting your hard-earned money. It also has cool tools for analyzing your credit card debt and provides great information to help users become more financially literate.
There are many more, but these are just two of our favorite.
Save Money – Sometimes without Even Trying
There are quite a few ways to save money without even thinking about it. Setting up automatic transfers from your checking to savings account can help you save money every month without you even realizing it. Some banks have programs where they round your purchases up to the next whole dollar and deposit that extra money into a separate savings account.
Start bringing your lunch instead of eating out every day, buy frozen pizzas from the grocery store for your family’s weekly pizza night instead of ordering out, make your coffee at home instead of stopping to buy it on your way to work, turn your heat down a little bit more at night and when you’re not home during the day. Sell tangible assets that you don’t use or need.
“I have had many clients sell their motorcycles, antiques and trading cards for their cash to close,” Russell says.
Try asking your family or employer for a cash gift to go toward your new home, Russell suggests. “You never know if they’ll help unless you ask!”
And lastly, Russell suggests that if you have a 401K or IRA, you can borrow against your retirement funds without withdrawing them. “You can pay yourself back with interest!,” she said; just be sure you can afford the retirement loan and the new mortgage payment.
Whatever method you use to start saving money for your down payment, the most important tip is to start doing it right away. So start creating your budget today!