Although it might feel like an impossible task to save for a down payment on a house, there are ways to successfully save. Having said that, the inability of potential buyers to come up with a down payment and closing costs is one of the top reasons non-homeowners are still renting.
But don’t worry. It is possible and you can do it. Here are some tips on how to save for a down payment.
Speak with a Lender Early On
Start working with a trusted mortgage expert right away. Working with a lender to get pre-approved for a mortgage is an important step in accurately determining your budget. A great lender will be able to provide you with actionable steps to prepare you to qualify for a loan regardless of your timeline.
Follow a Budget
Budgeting shows your money who’s in charge (you!). It gives you the power to tell your money where to go, instead of you wondering where it went. Budgeting is how you make your money goals happen. Whether it’s a spreadsheet or an app, find a way to track your spending. It’s easier than you may think to keep track of your spending. Here’s a simple method:
- Write down your monthly income
- List your monthly expenses (your necessary expenditures)
- Subtract your expenses from your income
- Track your expenses all month long
Once you’ve done this you’ll be able to see where your money is going, and what expenses can be eliminated.
Cut Out Unnecessary Spending
Cut back on things you don’t really need. Sure, we all like to splurge once in a while and it may be painful at first to skip those splurges. But remember, it’s just temporary until you’ve reached your down payment goal. Here are some ideas on how to cut spending:
- Eat out less
- Make your own coffee at home
- Replace vacations with “staycations”
- Eliminate some video streaming subscriptions
- Trade your gym membership for free at-home workouts on YouTube
File your Credit Card Away
It’s so easy to pull out the plastic and charge things. Having your credit card in your wallet at all times creates the temptation to buy. By not having it easily accessible it forces you to think, “Do I really need that?” Don’t start cancelling credit cards though. That could affect your credit rating.
Get Another Gig
If you really want to accelerate your down payment savings, pick up another job on the side. Side hustles are easy to find and go a long way to help you save for that down payment. It doesn’t have to be anything fancy and you don’t have to work there forever. Here are some ideas for gig jobs:
- Drive for Uber or Lyft
- Dog walking or pet sitting
- House cleaning
- Restaurant server
Stash away everything you make at your side job to go towards your down payment.
Pay Off Debt
On average, 30% of Americans’ monthly income goes toward paying non-mortgage debt (credit card bills, car loans, etc.).* For example, if your monthly take-home pay is $4,000, then $1,200 of that would be swallowed up in debt each month ($4,000 x 30%). If you got super motivated and paid off that debt, you could use that $1,200 towards your down payment. That would add up to $14,400 in one year.
Automate Your Savings
One of the best ways to save for something is to set that money aside and forget it. If you receive a regular paycheck, ask your employer to direct a portion of each paycheck into a savings account. If you’re self-employed, set up a recurring transfer from a checking account to a savings account.
Contact the Donnelly Group
Saving for a down payment may seem like a daunting task, but by planning and budgeting as well as some sacrificing, you’ll have that down payment in no time.
If you are considering buying a home in metro Phoenix, the Donnelly Group has lending partners we can connect you with, and the expertise to help you all the way through your purchase.