Are you looking to buy a house, but struggling to come up with the money for a down payment? Read on to discover how to save for a down payment…
While many people think you need to save 20 percent for your down payment, the truth is, you need to save much less. In fact, the median down payment for first-time buyers is 7 percent, while the median down payment for repeat buyers is 16 percent.
However, 7 to 16 percent of the total cost of a home is still a lot of money- we’re talking thousands and thousands of dollars. If you’re wondering where you’re going to get that money from, you’ve come to the right place.
1. Create a Savings Goal
When saving for a down payment, the first thing you should do is create a savings goal. As we just mentioned, the traditional 20 percent down payment is dead.
However, this doesn’t mean you should make the smallest down payment possible just because you can. The bigger the down payment you can make, the lower your mortgage bills will be and the sooner you can pay off your home. So, take a look at your finances and figure out an amount that’s reasonable, whether that’s 5 percent, 10 percent, or 25 percent.
2. Set Up an Automatic Transfer
This is perhaps the most popular and convenient way to save for a down payment.
All you have to do is create a special savings account, and then direct automatic deposits into it each month. Commit to only using this balance for your down payment.
3. Cut Expenses from Your Budget
When it comes to saving money for your down payment, every dollar counts. Therefore, you should do whatever you can to cut from your monthly expenses.
You’ll be amazed at how much little adjustments can quickly add up. Here are some ways you can temporarily tighten your spending:
- Put a pause on your gym membership: saves $50-$100 per month
- Save eating out only for special occasions: saves $100-$250 per month
- Trim your clothing budget: saves $50-$200 per month
- Cut the cable: Saves $60 per month
- Buy generic brand groceries and farmer’s market produce: Saves $150-$200 per month
Following this approximate example, you’d save anywhere from $410-810 per month! Over the course of two years, it could save you as much as $19,440! That’s a good chunk of change to put toward a down payment.
4. Put a Pause On Your Retirement Savings
If you’re someone who’s been diligent about stashing away money each month into your retirement savings, this tip might feel like a bad idea.
However, redirecting those funds toward a down payment can make a big difference. And remember, it’s just a temporary adjustment. Think of it this way, if you’re putting $400 away each month toward retirement funds, that’s nearly $10,000 you could save in two years.
Then, once you’ve made the down payment, you can get back on track.
How to Save for a Down Payment: Wrap Up
Now that you know how to save for a down payment, it’s time to put these tips into action.
And once you’ve set enough money aside, you’re ready for the next step. Contact us today for help with all your mortgage needs.