Coming up with a down payment is often the biggest barrier most people face when it comes to home ownership. It’s a huge sum of money to come up with - and not the only cost you have to prepare for when buying property. It’s also worth it in the end.
Buying a home should be possible for everyone, so today we’re gonna help you get one step closer to that goal. Here are 7 ideas that can help you save for your down payment...
But First, How Much Do You Need? Let's do the math together.
This can be a tricky question because the percentage you have to put down varies depending on your situation. A down payment is usually between 5-20% of your home’s total price. Different loan and grant programs, contingencies, and general loan agreements cause this percentage to fluctuate. According to Mortgage Reports, the actual average down payment for a first-time home buyer is 6%. Just to be safe, let’s make it 10% for the sake of easy calculations.
Other costs to consider are closing costs, ongoing costs, and your emergency fund.
Let’s say you’re looking to buy a condo priced at $450,000.
Your total cost would be $59,000. That’s a lot of money!
Even if your down payment is 6%, you still need to come up with $41,000 - and yes, sometimes closing costs get waived and you can minimize your ongoing cost, but you still need to be prepared for them. You also then need to have enough money for your monthly mortgage payment, PMI (private mortgage insurance) since you put less than 20% down, property taxes, and - depending on what you buy - HOA fees.
Daunting, right? But not impossible.
1. Consult a Lender
We said it on our step-by-step guide, and we’ll say it again - talk to a mortgage lender. Quality lenders help you determine where you are, where you need to go, and how to get there. Lenders can also introduce you to an abundance of helpful programs that could minimize your initial costs. For example, Federal Housing Authority (FHA)-backed mortgages have programs that may require you to pay only 3% down payment, so instead of paying $45,000 for a down payment, you’d only have to come up with $13,500.
Ask around - or ask us - for good lenders in your area. You should look for people in smaller, more agile institutions, that are quick to reply and can offer speedy turnarounds when asked to crunch numbers.
2. Set Goals and Milestones
Whether you do this with a lender or not, take a fair and honest look at your savings. How much do you spend, and how far away are you from reaching your target number?
Search for areas where you can reduce your spending and find ways to earn more to get closer to your goal. Avoid compulsively buying those new shoes on Etsy. Go out a little less (aww, remember going out?) and order less take-out.
Also, don’t over do it and sacrifice all your entertainment spending (aww, remember entertainment?) in the hopes of achieving your goals faster. You still need to, you know, have some semblance of a life (aww, remember having a life?).
Don’t just create a single goal - set up smaller milestones that will encourage you to stay on track. If your goal is to save $10,000 in one year, then your milestones should be to save $2,500 every 3 months, or $850 every month (or $833.33 to be more precise). Shooting for the milestones will make achieving your overall goal easier. Also, they’re worth celebrating - just don’t reward yourself with something too pricey. That would defeat the purpose ;).
3. Consolidate Credit Card Debt
Do you have multiple credit card balances? Try consolidating those balances so that you’re not spending interest on multiple credit cards. Most issuers charge a balance transfer fee, so run the numbers first to determine if it’s in your best interest. If it’s not, then focus all your efforts on knocking out one balance after the next, starting with your card that accrues the highest interest and works your way down.
Better yet, get a credit card that is interest free for a period of time and transfer your balances, and pay down your debts without accruing additional interest.
You can also try credit card refinancing. It requires good or excellent credit to do so, but if you have it - and can be responsible with your credit cards - definitely look into it. This allows you to transfer credit card debt to a balance transfer credit card that charges no interest for 12-18 months.
4. It’s Not Delivery - It’s… Actually, It Is Delivery
Working for companies like Uber and DoorDash are great ways to earn a little extra money without a forced time commitment. Two of our friends recently did this to pay for their wedding!
Becoming a driver is relatively easy. You also get to work on your own schedule, so during those lighter work weeks or uneventful weekends, you can get in your car or ride your bike and make some extra $$$.
5. Spring Cleaning Sale
Got a lot of stuff? Wanna sell it? Host a garage sale or put some of your stuff on Ebay or Facebook Marketplace and see how much you can get for it. You probably won’t get a whole down payment’s worth, but every little bit helps.
6. Apply for grants
Yes! They exist! There are all sorts of grants out there for first-time home buyers. Your lender will have more insight on this, but here are a few to look at. Depending on your situation, these could be an immense help when you’re looking to buy.
7. Look into CDs and High-Yielding Savings Accounts
Don’t lose money while saving it. Put your money into a CD (if you’re not planning on buying within the next year or so) or a high-yielding saving account. Look up the rates that banks and credit unions are offering. Bankrate has an extensive list of these that are updated often.
Buying a home is one of the safest and best investments you can make. Down payments and the additional costs associated with home buying take time to save for, but it’s worth it in the end.
And if you have any questions or need more ideas, we’re always here to help.
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