How to Save for A Down Payment

When thinking about buying a home, the thought of needing a large down payment can be daunting. The truth is, you are not required to put 20% down to secure a mortgage.  Depending on which loan product fits your situation, you could put as little at 3.5% down. The advantage of putting 20% down could be removing PMI insurance along with building equity faster. If you are looking for some helpful tips that I used to save for my first down payment, I’ve detailed them below: 

Create a budget:

The easiest way to save money is to spend less than you make. However, this often easier said than done. An effective way to determine where you can cut costs is to lay out all your monthly expenses in a spreadsheet. Analyze which areas you can improve upon. Easy strategies can increase your savings quickly: sign up for a streaming service versus paying for cable, shop around for different insurance rates, eat out once a week instead of every day. Be honest with yourself and make your new budget your priority.

Create an Automatic Saving Account:

Open a bank account dedicated to saving for your down payment. Ensure that you keep this account off limits and implement your checking account for bills and other expenses. Set up monthly contributions to automate the savings process.

Bonuses: 

If you receive a quarterly or annual bonus, commit to saving all of it for your down payment. These large amounts will add up quickly and will get you to your goal much faster. Save those tax refunds as well! It is easy to allow yourself a little splurge here and there, but think about how much happier you will be making a significant investment in your future.

Skip the big purchases

Avoid spending money on things that are not necessities. Extra vacations and new cars are fun, but putting off these purchases for after you purchase your home can make all the difference in how much you can save for your down payment.

Examine Your Current Living Situation

Look into renting in a different area of town or downsizing to save a large portion of your monthly expenses. Think of it as a sacrifice in order to afford the home you truly want to live in for years to come.

Scale Back Your Retirement Savings:

If your employer provides a 401(k) match, it is wise to save enough to qualify for that amount. Many cap at 6% so it may be in your best interest to put that additional capital towards your down payment. First time home buyers can also use their IRA as a supplement for their down payment. More often than not you can withdraw up to $10,000 without penalties from your account to help you with your home purchase. Weigh pros and cons for all options.

Be Accountable

Asses your gains at the end of each month and determine how you can stay on track if you are missing your goals. Inform your friends and family about your new goals as they can aid in keeping you accountable. Let them know your lifestyle may be changing for a while and ask them for their support.