The Secrets To Saving For a Down Payment
If you’re looking to buy a home, getting the down payment ready could seem like a daunting task. You may have heard that you’ll need to save up 20% as a rule of thumb, but really that’s just a myth that we actually debunked in a previous blog post which you can find here. Buyers these days can actually get away with putting much less down, more in the range of 5 to 10% and in some circumstances possibly even zero. However, houses can still be fairly large investments and depending on where you live even a 5% down payment may be challenging to part with. Don't worry - we're sharing our secrets to make saving for a down payment a much more manageable task.
Set up a savings account solely dedicated to your down payment
When you have all your funds mixed into a single bank account it can be easy to be tempted to use that money for other expenses. Of course if they’re necessary we’re not saying to avoid those expenses but if there’s something more discretionary at hand you’re less likely to spend money unnecessarily if you have the extra barrier of knowing you need to transfer money out from an account dedicated to your down payment. It can seem small but it can have some significant impacts over time. Furthermore you can also leverage this account by setting up automatic deposits. This way you’re adding to your savings without the need for deliberate action. We all know we should exercise more and eat better but do we really all the time? The same can be said about financial habits and so just make the saving automatic and you’ll thank yourself later for it.
Set a budget
As with any endeavor that involves saving money, you’re obviously going to need to set a budget because how are you going to save money that you don’t have? The core if it is to look at how much you’re bringing in on a monthly basis, how much you need to spend on expenses that are absolutely necessary (think rent, utilities and the like), and then seeing how you can save as much of the remainder as possible. This may involve eating out less often, taking fewer vacations, or really anything else that isn’t completely necessary. If you’re really dedicated to buying a home, making some sacrifices like this should feel justified.
Reduce high interest debt
If you have debt with high interest rates, you’ll want to look at either getting rid of that as quickly as possible or at the very least refinancing such that you’re able to get a lower interest rate. For example if you have a large amount of credit card debt on a card with very high interest rates, you can look towards transferring that balance to a new card with a lower interest rate. This will provide immediate savings in that the money you would have spent on interest can now instead be funneled to your new down payment dedicated savings account.
Consider selling unnecessary items, valuables or investments
If you’re a hoarder and have lots of things around that you don’t necessarily need, it could be a good time to host a good old fashioned yard sale. Depending on how much you have to sell you may end up with a considerable amount of money. Alternatively you can also consider selling some of your valuables. Perhaps there’s some expensive jewelry that you don’t really need or a painting that you can probably do without. Selling these types of items can make some huge dents in the amount you’ll need to save for that down payment. Worst case scenario you can even consider liquidating some of your investments to get closer to your down payments savings goal.
Get a second job
Like we said before, saving is really a game of maximizing the money you can keep for yourself after looking at what you bring in and what you absolutely need to spend each month. If the left over amount isn’t getting you to your savings goal fast enough you can increase the amount you're bringing in by getting a second job. If you have any special knowledge you can consider teaching on the side. For example if you know how to play a musical instrument you can provide lessons to local students or if you’ve been relatively good at school you can look towards tutoring. You can also turn to the gig economy with options like Fiverr or ride-sharing and food delivery. There are quite a few options available nowadays to drum up a little extra cash when you need it. You just need to find which one works best for you.
Look into down payment assistance
You’re not alone in your struggle if you’re finding it challenging to save up for your down payment. In fact it’s enough of an issue that there are programs built around providing assistance for just such a dilemma. A quick Google search will easily present you with a few options to consider. We just advices that you properly do your research and consult with other before moving forward so that fully understand all that you’re singing up for.
Negotiate with the seller
If you’re really struggling to get the amount you need to make the down payment and you’ve found a house that you just absolutely love, you can always try and negotiate with the seller. How open they are to negotiation will vary depending on the person as well as how hot the market is but it doesn’t hurt to ask. Just keep in mind that in a seller’s market it’s much more likely they’ll go with the easier route of just finding another buyer but if you’re able to strike up some great rapport with the seller you never know. Maybe try and work your charm to lean things in your favor.
Borrow from friends and family
We saved this one for last, because it's probably not your best option. However, turning to family or friends can be an option. This option will allow you to essentially get a loan without the need to pay interest. This depends on your friends and family and their tolerance with being patient on getting paid back, but we figured we’d at least present the option for you to consider.
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