When looking to purchase a home, it is essential to save up for a down payment. Ideally, you should put at least 20% down in order to reduce interest costs and avoid mortgage insurance (PMI).
Saving aggressively and giving yourself enough time to reach your goal will be the key to reaching it. Begin with a small amount each month and increase it from there.
1. Set a Savings Goal
When saving for a down payment on a home, it’s essential to set an objective and stay committed. Otherwise, you could become tempted to spend money that isn’t related to your savings goal, leading to less money than intended or having none at all at the end of the process.
According to Shannon McLay, former Merrill Lynch financial advisor and founder of The Financial Gym, it’s best to make your savings goals as specific as possible. She suggests setting short-term, mid-term and long-term objectives.
2. Create a Budget
Budgeting can help you gain control over your spending and save more money for a down payment. A budget outlines all of your monthly expenses and shows you how much income you make compared to what you spend.
Begin by creating a comprehensive list of your living expenses, including fixed costs such as rent, groceries and transportation. Since these will take up most of your income each month, it’s essential to have an accurate estimate for how much you spend on them each week or month.
Next, dedicate a portion of your monthly budget to paying off nonmortgage debt such as credit card bills and student loans. Doing this can result in thousands of dollars saved on interest over the life of your mortgage.
3. Reduce Unnecessary Expenses
If you’re having difficulty saving for a down payment, try cutting back on unnecessary expenses like impulse buying or eating out too often. This could include things like taking shorter showers and eating at home more often.
Additionally, you might want to consider cancelling any automated bills that you rarely use, such as cable television or gym memberships.
Canceling your cable TV subscription could free up a significant amount of money to put toward down payment savings. For instance, cancelling the service could save you an annual cost of $1,200.
4. Take on a Roommate
By sharing the costs of rent, utilities and security deposit with a roommate, you can significantly reduce apartment living expenses.
However, it’s essential to select your roommate carefully. Some people have difficulty living with multiple people and conflicts can easily arise.
When taking on a roommate, it’s essential to communicate your needs and preferences from the beginning. Doing this can prevent much frustration down the line.
5. Sell Your Junk
If you’re in the market for a home, saving for a down payment is an essential step in the process. Not only does it lock in your mortgage interest rate, but it also gives you some extra funds to use towards improvements and repairs.
Saving for a down payment requires taking advantage of all available money-making opportunities. Selling your unwanted items is an excellent way to up the ante on savings while putting some cash in your pocket at the same time.
6. Pick Up a Side Job
A side job can be an excellent way to earn extra income and save for a down payment. From freelance writing and dog walking to working at a local coffee shop, there are plenty of ways to put money in your pocket while increasing your savings.
Finding a side gig you enjoy doing is key to success. Only when you are passionate about something will you put in the effort necessary to make it successful.