I bought my first house one year ago and having a good down payment was crucial for our home buying process.
Here are the things you need to know to successfully save for a house down payment.
What is a down payment?
A downpayment is a partial payment of a large purchase. For example, a down payment for a mortgage is typically between 3%-20%.
What is the minimum down payment on a mortgage?
For a conventional loan, the typical minimum down payment is 3% depending on the type of loan.
What if I can’t afford a 20% down payment?
With house prices skyrocketing a 20% down payment isn’t as common as it was before. If you have a conventional loan and you can’t afford a 20% down payment, your lender will require a private mortgage insurance (PMI). PMI is a type of mortgage insurance that protects the lender, not you, in case you stop making payments to your mortgage. PMI can be avoided if you make a 20% down payment.
Here are 10 tips for successfully saving for a house down payment.
1. Get your financial habits set in place now.
Before purchasing a house, it’s extremely helpful if you get financial habits in place. This makes the whole process a lot easier since you’ll know how to handle your handle.
For example, it’s helpful to know how to budget, save for an emergency fund, and contribute to a 401(k). You can learn all of these things on Fitnancials and I even share the best resources on how to invest for retirement. If you don’t know how to set up your retirement yet or how much to save, check out the affordable course: Build Wealth By investing In Index Funds.
2. Start and stick to a budget.
Knowing how to manage your money and spend responsibly is one of the best things you can do for you and your family.
This is how to make a budget.
- Calculate monthly income after taxes. Add up all of your paychecks in one month.
- Track all spending. I use a free app called EveryDollar to track my monthly spending.
- Once you know how you’re spending, you will get a better idea on where you can cut spending.
It’s really this simple. Once you get the hang of budgeting, it’ll become a habit and something you do without even really thinking about it!
Read this: How To Create A Realistic Budget
3. Create a house emergency fund.
So many things can break in a house and owning a home is an ongoing maintenance process. This is why having a house emergency fund (or any kind of basic emergency fund) is key.
A good emergency fund has about 6 months of living expenses. I know this might sound crazy now, but you can start slowly. If you have nothing saved so far, aim to save $1,000 in your emergency fund and then go from there.
For example, if you spend $3,000 a month, you should aim for saving roughly $18,000 in your emergency fund. This is deal if you lose your job or a recession hits and will keep you afloat for at least 6 months.
Read this: 5 Step Guide To Starting An Emergency Fund
4. Pay off debt.
It’s obviously ideal to be completely debt-free before purchasing a home but that’s not realistic for most people. Being debt-free is just one less thing you have to worry about when purchasing a home.
First of all, stop acquiring new debt and then work on paying off high interest debt first. Although you’re trying to save money for a down payment, it’s just as important to pay off high interest rate debt.
5. Set up automatic transfers.
Make saving easy by setting up automatic transfers. Once your budget is in place, you’ll know exactly how much you can transfer to your savings account for a home down payment. Many banks now offer automatic transfers into savings account and this is something you can easily do every payday.
6. Get involved with a community.
There are so many communities out there with people that have the same goals as you. It’s incredibly helpful to see other people on the same journey as you and it’s equally as helpful to see how other people are saving for a house down payment. Instagram, Facebook groups, and YouTube are all great options for finding a community of likeminded people.
7. Ask for a raise.
It doesn’t hurt to ask for a raise because the worst that will happen will be they say no. Indeed has a great script for asking for a raise properly so you increase your chances of getting one.
8. Side hustle.
If you can’t make any more money at your day job, it’s time to think about side hustles. Side hustles are a great way to earn extra money in your free time. I started side hustling in college and it was a great way to expand my skills, network, and earn more money.
Some of the best side hustles include:
- Filling out surveys
- Freelance writing
- Starting an Etsy shop
- Working from home as an English teacher to kids in China
- Starting a blog
- Pinterest virtual assistant
- Finding a remote job on FlexJobs
- Proofreading from home
Read this: 30 Best Side Hustles To Start Right Now
9. Put extra money toward savings.
Any time you get extra money like a tax refund, work bonus, or financial gift, use this money to go toward your down payment. This can add up to a lot of money every year, especially if your work bonus is 5% of your annual income.
10. Ditch unnecessary spending.
This is crunch time to get your down payment so it’s ideal to cut out any unnecessary spending. Are you going out for lunch everyday? Are you buying name brand instead of generic? Do you have way too many memberships and subscriptions? Are you negating your bills?
These are so many ways you can cut extra spending in order to put more money back in your pocket.
Here are my favorite ways to save money:
- Get cash back on groceries (even healthy foods) with Ibotta. Get $10 for signing up for Ibotta here.
- Slash your cell phone bill in half by switching to Tello. Tello plans start at $5 and the highest plan being $39. You can cancel or upgrade your phone plan any time you want and keep your existing number. I only need the $19/month Tello plan which gives unlimited text and calling, with 4GB of data.
- Move your money into a high-yield bank savings account. Your bank right now probably offers 0.03%. That’s nothing. CIT Bank currently offers up to 1.70%. You can move your money and emergency fund to a high-yield savings account to save even more money. Open a CIT Bank account here.
- Cancel gym, streaming, or other memberships you aren’t using
- Save money on meal planning and save time grocery shopping with $5 Meal Plan. You get your first 2 weeks free here.
- Lower your bills like your cell phone, internet, cable, insurance, and more with Billshark. I used it myself and saved $290. All you do is upload a bill that you want to save money on here.
- Get cash back on online purchases (pretty much anywhere) with Ebates. You get $10 for signing up for Ebates here.
- Get the best coupon codes instantly when shopping online with Honey.
Read this: 7 Bills You Can Negotiate To Save Money
Saving for a house down payment is 100% doable if you take the right steps to successfully save. You can do this! Buying a home is a big step and having a good percentage of a house down payment is key.
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