Saving up enough for a home can feel impossible. But with a solid saving plan, anyone can put away enough for a down payment on the home of their dreams. There are a number of simple strategies you can use to make saving for a home a little easier.
Today, we’ll show you some tips and tricks you can use to save for a down payment on your future home.
First, Determine How Much Your Down Payment Could Be
Some potential home buyers believe they’ll never be able to buy a home because they can’t afford a 20% down payment. The truth is that many lenders no longer require 20% down. Depending on your credit score and income, you may be able to get a conventional loan with as little as 3% down. If you qualify for a USDA or VA loan, you can even buy a home with no down payment at all.
Why do so many people believe that they need 20% down to buy a home? The 20% down myth comes from the private mortgage insurance (PMI) rule that most lenders have. If you have less than 20% down at closing, you’ll need to pay for private mortgage insurance. This protects your lender if you default on your loan. Though having a 20% down payment will save you money over time, it’s not a requirement to buy a home.
If you’re just beginning your home buying journey, a great place to start is figuring out how much home you can afford. Once you take this into consideration, you’ll be able to get a realistic expectation of what your down payment could be.
How To Save Money For A House
Now that you know how much money you need to buy a home, it’s time to start saving. Use these strategies to start saving for your future down payment.
1. Build A Better Budget.
The first step in the saving process is budgeting. If you don’t know where your money goes every month, it’s impossible to divert money to your down payment.
First, sit down with your bank statements and all of your credit card payments. Take a look at where you’re spending the most money. Note how much you currently spend on necessities like rent, student loan payments and utilities. Then, consider how much you spend each month in non-essentials like entertainment, restaurants, etc. A budgeting app can help you automate this process if you’d like to avoid calculating your expenses yourself.
After you categorize your expenses, look for areas where you can cut back. Set a definite (yet realistic) budget for each category and stick to it. Make sure you budget a certain dollar amount to put away for your down payment each month. Consider your savings a non-optional expense.
2. Consider Downsizing.
One fast way to save more money toward a down payment is downsizing. Downsizing is the process of reducing your expenses and living below your means while you save. When you downsize, you reduce the amount you pay for necessary expenses and instead divert that extra money into a savings account.
Moving into a smaller apartment, selling one of your extra family’s vehicles or moving to a more affordable area are all great ways to downsize. Many people downsize temporarily while they save for a major purchase, but you may find you actually enjoy the simple life.
3. See What Other Employment Options Are Out There.
Are you earning as much as you should for your line of work? Switching jobs and landing a higher-paying salary can help you save money for your down payment.
Browse job posting sites and salary comparison websites to see if you earn as much money as people who work in similar roles. If you discover your salary is below average, consider using your findings as leverage to ask for a raise or inquire about a promotion at work.
If you aren’t in love with your job or you can’t get a raise, consider searching for higher-paying positions you qualify for.
4. Pick Up A Side Hustle.
In the on-demand “gig economy,” it’s easier than ever to earn money on your own time with a lucrative side hustle. Here are a few ideas you can use to get started:
Pick up some freelance work. Freelancing is a type of work that allows you to complete individual gigs for clients from the comfort of your home. Contracting out your skills as a writer, photographer, artist, musician and more can put more money in your pocket on your own schedule.
Drive for a ridesharing company. Rideshare companies like Uber and Lyft offer an ideal side hustle because they allow you to work as often or as little as you like. If you have a standard 9-to-5 job, you may be able to maximize your earnings by driving on weekends and at night. These are also the times when demands for rides and prices are at their highest, therefore earning you more money per mile.
Pet sit or walk. Everyone loves their furry friends, but not every pet owner has the time to walk and care for their dog. Pet sitting for business travelers and people going on vacation can be a lucrative and fun side hustle if you love animals.
Test apps and websites. Companies need everyday users to test out apps and websites to make sure they’re user-friendly. Consider signing up with a testing company like Testbirds or UserTesting and earn money when you share your feedback.
5. Chop Down Your Debt.
If you’re on a mission to buy a home, diverting your extra income toward your debt might seem counterintuitive. However, one of the first things lenders look for when they consider you as a mortgage candidate is your debt-to-income (DTI) ratio.The more debt you have, the less favorable you are as a candidate. This can mean that you’ll pay more in interest and have a higher down payment requirement.
Take some time to reduce your debt before you apply for a mortgage loan. Look at exactly how much you owe on your credit cards, student loans, personal loans and auto loans, and create a plan to tackle it.
6. Rent Out Your Spare Room Or Parking Space.
Do you have an extra bedroom in your apartment? If you do, consider listing your extra room on an online hospitality website like Airbnb. With Airbnb, you get to control who uses your space and when. You can approve dates and guests ahead of time and only rent out your spare room when it’s convenient for you. You can even block out dates when your rental isn’t available if you have a friend or family member coming for a visit.
If you live in an urban area where parking is at a premium, consider renting out any assigned parking you have control over with an app like JustPark. JustPark lets you rent out your parking space just like you’d rent out your spare room on AirBnb. If you live in a heavily populated area, this can be an amazing source of extra cash on the weekends.
7. Ask For Help.
There’s no shame in asking for help, especially when you’re saving up for something as large as a down payment on a home. More and more homebuyers are crowdsourcing their down payments through websites and apps. Youmay also want to ask relatives and friends to skip physical gifts on holidays and special occasions in lieu of money. This is becoming a more common practice at events like weddings and baby showers.
Keep in mind that there are special rules on how you can use gift money to pay for your down payment. Know your mortgage loan types and read about the rules surrounding gift money and down payments before you accept money for your new home’s down payment.
8. Automate Your Savings.
If you’re the type of person who’s prone to impulse shopping, you may want to consider automating your savings. Here’s how it works: first, decide how much you want to save per month for your down payment. Then, contact your bank and authorize an automatic withdrawal from your primary account into a separate savings account. Your bank will then automatically take money out of your account each month and put the money into a separate account.
This can be useful for people who have trouble managing their money. When you make your money less accessible, you may be less tempted to buy things you don’t need. Just remember to schedule your withdrawal on your payday or when you know you’ll have enough money. Overdraft fees can put a serious dent in your down payment fund.
If you want to save for a down payment, you should have a solid plan in place. But first, make sure you know how much you need for a down payment. Though many people believe they need a 20% down payment to buy a home, it’s actually possible to buy a home with as little as 3% down. Certain types of government-backed loans can even allow you to buy a home with $0 down. Research your loan options and figure out a rough estimate of how much money you’ll need before you start saving.
There are plenty of ways you can save money for a down payment. Start by creating a budget for your household that includes saving a certain amount of money every month for your down payment. You may also want to consider picking up a second job, moving into a more lucrative career or downsizing to save more. Reducing your debt, asking for help from friends and family members or renting out an extra bedroom can all also help you put away more money.
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