8 Tips to Saving Enough Money for a Down Payment on a New Home
Whether now or years down the road, deciding to invest in real estate is an exciting prospect. It's never too early to start thinking about saving enough money for a down payment on a new home. Buyers who save more money can bring down the overall cost of interest payments and even potentially eliminate the necessity to pay for private mortgage insurance (PMI).
Looking to start a savings plan for a down payment? Read on to discover eight hacks to help save enough money for a down payment on a house.
Research Regional Home Prices
Buyers who know where they want to settle down can get started by familiarizing themselves with the local market. While home prices often fluctuate, preliminary research can help determine a ballpark range of how much will need to be saved for a down payment. Starting with a goal in mind will make the saving process more manageable.
Use a Free Mortgage Calculator
To get a better idea of reaching financial goals, it helps to use a free online mortgage calculator. These tools can go a long way towards the planning process to achieve the desired timeline for buying a home. Online mortgage calculators help people determine how much house they can afford by factoring in income, monthly debts, savings, and other specifics. The result will help homebuyers determine how much more they need to save and how long it'll take.
Set Up an Automated Savings Plan
When it comes time to save for a down payment, many people realize that they don't know how to budget money effectively. Saving money equating to a large home down payment seems like a staggering task, but pre-selecting the amount necessary to save and automatically sending that amount into savings each pay period removes some of the burdens and reduces the possibility of money being spent on other non-essentials. It's helpful to set up a separate account designated for a home down payment savings and closing costs. Higher-yielding interest accounts, such as CDs, can be explored if not planning to buy anytime soon.
Add Extra Money When Possible
Aside from automated and scheduled savings, plan to add unexpected money into the home savings account. Gifted money, tax refunds, inheritance, and other forms of money that come as a surprise are the perfect opportunity to boost a savings account and reach down payment goals sooner. Instead of spending extra money, set aside at least 10% towards savings. Extra income should be enjoyed, but every penny counts when you're saving for a down payment.
Cut Excess Spending From Your Budget
To help shift money from the expense side of a budget to the savings side, look to cut unnecessary or excess spending. It's not the most fun task but can help speed up the time needed to reach the home buying finish line. Expenditures many people find they can scale back on include eating out, vacations, clothing (thrift and consignment stores are great alternatives!), and online subscriptions. Minor budget cuts often equate to significant savings over time.
Pay Off Debt and Optimize Your Credit Score
Dealing with high-interest debts makes it challenging to save, so once the decision is made to plan to save for a home, it's a good idea to pay down debt or consolidate high-interest debts into low-interest debts. Less debt will equate to a more robust credit score and help obtain better mortgage terms when the time comes.
Increase Income and Adjust Your Budget Accordingly
Sometimes scaling back on spending or reducing debt isn't enough. In that case, hopeful house hunters can look for ways to increase their income. Ways to do this include starting a side hustle, doing odd jobs for people, working overtime, negotiating a raise, selling unused and unwanted possessions, or taking a part-time job. No one wants to spend all their free time working. Be efficient with your side hustle and update your budget every time your income increases. Without the structure of a quality budget, extra income just leads to extra expenses.
Consider a Temporary Downsize or Relocation
While inconvenient, temporarily downsizing existing housing or moving to an area with a lower cost of living can go a long way towards achieving down payment goals for a home. This helps reduce current spending, and the extra money not being spent each month can be diverted to savings.
Save Efficiently to Earn a Down Payment For Your Home
Putting together enough money to make a down payment on a home can feel like an impossible task, but having a plan, making simple changes, and sticking to the plan significantly contribute to successful savings. Keep in mind PMI is often required by conventional mortgage lenders if 20% of a home's price isn't put down, which adds to the overall cost. If 20% is not doable or unlikely, exploring other types of mortgages, including government-backed loan options, can offset the need to save up that sum of cash. With these tips, the dream of providing a down payment can quickly become a reality.