Ready to Buy a New Home? These 6 Tips Will Help You Save for a Down Payment
How often do you think about buying a home, but get discouraged over the thought of trying to save for a down payment? Saving up thousands of dollars may seem like an impossible task, especially if you already have to thoughtfully budget your money. But it may not be as difficult as you think.
1. Set a Goal – It’s a lot easier to stay on track if you have a concrete goal that you are working towards. Determine the average purchase price of a house in the the market you would be interested in, and then aim for a 20 percent down payment. You don’t necessarily need this much, but if you put 20 percent down, you will have an easier time getting approved and a better chance at a more desirable rate. Plus, you won’t have to pay private mortgage insurance.
2. Open a Separate Savings Account – Even if you have a savings account now is a good idea to open a separate account just to save for this purpose. Make sure it can’t be accessed conveniently with your debit card.
3. Save Automatically – If your payroll department offers the option to have a fixed amount or percentage of your paycheck automatically deposited into your savings account jump on this opportunity. If you don’t see the money, you won’t miss it as much.
4. Temporarily Save Less for Retirement – Obviously, saving for retirement is important. However, if your employer matches your 401(k), and you are contributing the maximum amount already pull back a little so some of that money can get deposited into your down payment savings account. You may also be able to borrow from your 401(k) at a low rate, but make sure you understand that if you lose or leave your job, you will face stiff penalties if you don’t pay this back in a specified amount of time.
5. Don’t Spend Your Cash Refund – If you get excited during tax season because you look forward to splurging on a vacation or buying a new toy with your refund, maybe it’s time to restrain your spending for once. Considering the average refund is over $3,000 that is a generous amount that could really boost your down payment fund.
6. Reduce Spending – Skipping your daily stop at the café and packing your lunch instead of eating out every day are good places to start, but focusing on bigger expenses will help you reach your goal faster. This could be downsizing to a smaller apartment, adding a roommate, shutting off the cable, and skipping the expensive monthly tanning package.
Saving for a down payment may seem out-of-reach. However, if buying a home is really important to you, you’ll evaluate your overall spending and look for ways to start saving, or save more than you already do. These tips will help.