If you are getting ready to purchase a town home, condominium, or single-family home, you will likely need to save up a down payment before you can qualify for a mortgage and gain the keys to your new kingdom.
Down payments can be as low as 3%, but investing 20% as a down payment is much more common in order to avoid having to pay for private mortgage insurance as part of your monthly mortgage and escrow payment.
As such, a new home priced at $400,000 would typically be purchased with a down payment between $12,000 and $80,000. To which you have to add other closing costs for loan, title policy, etc. which could easily be $5000 depending on the seller’s contribution to such costs.
Coming up with this large of a sum of money isn’t easy for most people, but it can be done with planning and saving. Here are 5 easy ways you can save for a down payment to buy your new property.
Find Ways to Cut Back on Spending
If you’ve already been budgeting you likely know how much you are spending in different areas of your monthly budget. If not, now is the time to start. It will be much more difficult to save up a large down payment if you haven’t been budgeting and tracking your spending each month. Once you’ve got this down you need to try and find ways to cut back on spending so you can funnel more money into your down payment savings account.
Open a Dedicated Savings Account
This brings us to the next part of this plan. In order to maximize your savings efforts and avoid spending your down payment money on other things, you should open up a separate savings account that you only store money in for your down payment.
Another tip to help cut down on the temptation to spend this money prematurely is to keep your down payment savings account in a different bank than where you keep the rest of your money. This will prevent you from seeing it on your online banking account and in your monthly bank statements so it can grow without you being tempted to spend that money elsewhere.
Make Savings Automatic
If you find that you are consistently falling short of your savings goal each month, you should try paying yourself first instead of saving whatever is left over at the end of the month. This is a surefire way to make sure you meet your savings goals each month. If that’s not enough, you can also have money automatically put into your account on the same day each month so you don’t forget to make the transfer yourself.
Request Cash Gifts
For celebrations like birthdays, holidays, and special events ask family members to donate cash to go toward your house down payment fund instead of giving you something else instead.
Increase Your Income
Taking on additional responsibilities or hours at work can help you earn more money to put straight toward your down payment savings account. If this is isn’t a possibility at your main job, perhaps you can take on a part-time job on the weekend or in the evenings to help earn extra money for your down payment. You may even be able to do some odd jobs like babysitting or mowing lawns to help bring in extra money.
Saving as much as you can for a new home is smart. Watch your spending and do your best to set any “extra” money aside instead of spending it and you’ll have your down payment saved up before you know it.