Ways to save up for a down payment
Updated: Mar 23
About 60 percent of home buyers put 6 percent or less down on their home purchase, according to data from the National Association of REALTORS®. Considering the median existing-home price is $258,300, a 6 percent down payment would be $15,498.
Saving up for anything can sometimes take a lot of will power. Getting your morning coffee, going out to lunch, or buying unnecessary items at Target is fun and makes us feel good. The downside is it all adds up to a large amount of money per year that could be going into your home savings jar. If you're planning on buying a house getting the home you want in the neighboorhood you desire is going to be a long term thought process. Maintaining the current lifestyle of purchasing nonessentials for the short term feel good might get in the way of that house you want.
1. Cut Back On Expenses Without Cutting Services
If we're talking about saving thousands of dollars per year, it makes perfect sense to clear some room in your budget to make sure that your savings goal is doable. When you eliminate an expense it can go directly towards your savings. Take a look at your expenses and figure out what you wouldn't mind saying sayonara to and drop them today!
Things you aren't willing to say goodbye to: Call your current providers and ask what the other options are. Explain you can no longer afford the current rate and ask if they offer discounts or rate reductions. Maybe there is a different package that gives you want you need but not all the extras that get in the way of you buying that house!
If you can't get them to work with you then it's time to start shopping around. Can you switch cell phone carriers or insurance companies? Will another service provider offer you a discount or incentive to leave your current provider? How about cutting cable all together? We haven't had cable in our house for several years and we don't miss it one bit. Thanks Netflix!
2. Match your savings to your unnecessary spending
This is an awesome savings hack to help you keep mindful of what your spending and get you closer to achieving your downpayment goal! How it works: Everytime you go shopping and go "I need this!" look at the total amount of the purchase. Then transfer the same amount from your checkings to your savings.
Everytime you make a purchase of something you want but do not need - make a matching contribution to your down payment savings fund. It is obviously going to double the amount you spend but the point is that it will make you use and think about your money differently and really make buying that house a bigger priority. Another way would be to check the price tag, put your item back and simply add that amount to your savings which is a great option too if you have the will power!
3. Set up an automated savings plan
Sometimes people just aren't very good savers naturally (me included). It's hard work having to give up your favorite indulgences! But luckily just like your 401k plan, you can allocate a certain percentage or dollar amount of your regular pay to go directly into your savings account or money market account dedicated to accumulating the funds for your down payment. It's like having an automated drip in your garden! Grow money grow!
4. Bank that windfall!
Sometimes life throws you not lemons but sweet delicious apples! Some of these come in the form of income-tax refunds, gifts received, bonuses or large commission checks, or even the sale of personal assets.
Depositing these funds into your downpayment savings speeds up the money saving process to purchase your future home!
5. Life happens- build some flexibility into your savings plan
When you're saving up money, there will be demands on your finances along the way. Major car repairs, temporary loss of job, or uncovered medical expenses. Things happen and when you can best be financially prepared for them it makes dealing with them a little easier.
Make sure you have an emergency fund. Before you even start saving for your downpayment. If you have any predicatable expenses, prepare for those expenses as well.
Preparing you for homeownership
Buying a home is a big process and doing everything you can to prepare yourself is also preparation for homeownership. But don't stress! You have lots of options to save up for a down payment. Your home buying goal is just one part of your life. Sacrificing the quality of your days in every other area just to scrape as much cash as possible for this single financial goal isn't always gonna work. If you need to change your home buying timeline, do it!
Rachel C. Stacy
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