Tips To Help You Save For Your Down Payment
No surprise here, but houses cost money. One of the big costs that comes with buying a new house is the down payment.
A down payment is the money you give to the home’s seller (the rest of the payment comes from your mortgage), and is expressed as a percentage. Most mortgage lenders require a down payment of at least three percent, while a down payment of at least 20 percent typically lets you avoid having to obtain mortgage insurance.
Although you’re only paying for a portion of the house, a down payment is a big chunk of money to put forward. You’ll want to save everything you can to help pay for it. For some people, saving for a down payment can prove to bit a bit challenging. When in reality it can actually be pretty easy.
By simply changing your spending and saving habits, you can put yourself one step closer to your dream home. We’ve created a list of five ways you can change your money habits to save for a down payment.
1. Break your savings goal down into steps
Your overall savings goal may be overwhelming when trying to figure out how you’re going to meet it. Breaking your goal down into smaller, realistic steps can make it much more manageable.
For example, say your goal for the year is to save $6,000 for your down payment. Break that goal down to saving $500 a month, and you might find a way to get there a little more easily. Put a lot of thought into what your goals should be. They should be reflected in your budget and spending.
2. Think about your spending habits
Do you know how every cent you earn gets spent? If you want to save up for a down payment, you should know where you spend your money so you can see where you can cut back. Chances are you didn’t really need that Starbucks drink last week, it was more of a want. Try only spending when necessary. If you’re about to make a purchase, ask yourself why you’re making it and how it’ll affect your house saving goals.
Track your spending with a journal, spreadsheet, or budgeting app. You might be surprised by how much you spend on unnecessary things, and how much you save by cutting them out.
3. Create a budget
After tracking your spending habits for a few weeks, build a budget that maximizes the amount of money you can put into house savings. Every dollar you earn should be put somewhere into the budget.
Create categories such as household expenses, grocery expenses, personal expenses, new house expenses, etc., and assign each category a set percent or dollar amount for each week or month. This will help you separate your money by necessity, and keep you from going over the amount dedicated to each category.
4. Know your spending triggers
Are there certain things that you know you’ll want to buy no matter how hard you’re trying to save? These are bad spending habits that can hurt your savings if you’re not careful. It’s important to know your spending triggers so that you can make a plan to avoid them.
5. Pay off any debt
Being in debt makes it really difficult to save. Allocate a portion of your budget to any debts you need to pay off. The faster you pay these off, the sooner you can start saving.
Saving for a down payment can take time, and obviously a lot of money. By using these tips for changing your money habits, you’ll be on track to making your down payment in no time!
Read our post; The Often Forgotten Costs Associated With Buying A Home to make sure your house buying budget is accurate. Then head over to our Homebuyer’s 101 Guide to the Top Questions Your Realtor will Ask you for even more homebuyer prep.
Best of luck saving–it will certainly pay off when you’re able to purchase your dream home.