How To Save Up for a Down Payment
Saving a down payment to purchase a home is the first challenge you must face, no matter what route you decide. An FHA loan requires as little as 3.5 percent down, while a conventional loan requires 20 percent down. Saving for a down payment can take years, especially if you have debt or busy families. That’s why you need a solid plan and to know how to save up a down payment to make it work for you.
8 Steps to Save Up a Down Payment
- Figure Out How Much You Should Save
- Set a Timeframe
- Create a Written Budget
- Open a Separate Savings Account
- Reduce Your Living Expenses
- Set Up Automatic Transfer
- Add Extra Money You Find
- Keep Track and Stay Motivated
Rocking Your Plan to Save a Down Payment
Your first step is to figure out how much you need to save. The best step is to meet with a mortgage lender who can help you determine what your ideal mortgage should be. You can try to do the calculations yourself as well, but you need some estimation to start saving.
Once you have an estimation of the amount you want to save, determine your timeframe. For example, you might want a down payment of $10,000 in two years. That means you need $5,000 per year or roughly $417 per month. A written budget allows you to include it in your plans and to make sure it is affordable. Write out all of your bills, average grocery costs, as well as how much you might spend on gasoline, pets and sinking funds each month.
Does your budget feel a little tight? If so, your next step is to reduce your budget to make it more affordable. You might have to lower your grocery budget or cut expenses elsewhere to make it comfortable. If your budget is still too tight, you either want to increase your income or extend the timeframe.
You aren’t going to save your down payment under your mattress. Open up a separate savings account connected to your bank account. Make sure to set up automatic payments that transfer your set amount on each pay period. You can typically do so through your work if they deposit your check right into your bank. If not, your bank can do so. Automatic transfers stop the chance that you won’t save that week!
Now, your savings plan is set up, and you are making progress. Remember that there will be windfalls and extra money that comes your way. Birthdays, tax refunds, bonuses, and more are windfalls that can speed up your down payment savings. Weddings are the biggest windfall you might experience. Don’t be tempted to spend all of this extra money. It will get you to your goal faster.
Try some other ways to speed up your savings plan!
- Call and see if you can reduce your vehicle insurance.
- Have one or several garage sales this summer.
- Pick up a part-time job on the weekends.
- Refinance other debts.
- Use income-based repayment plans for your student loans.
Saving up such a large amount is daunting, and you might be tempted to stop your savings contributions. Make a chart to hang in your house that shows your progress. Consider having a goal, such as a new book or a new movie, when you’ve contributed so much to your savings. The journey might be difficult, but holding the keys to your home makes the journey worth it.