Homeownership is a dream for many people. They want to get out of the cycle of renting and having to rely on a landlord and want to own something of their own. But one of the biggest obstacles to getting into a new home is coming up with the money needed for a down payment. The larger the down payment, the easier it is to get a home, but saving takes time.
Starting right now to save up enough money for your down payment can be the key to getting you into the home of your dreams as soon as possible. But you will have to get serious about the work and get ready to make some sacrifices. Whether you are looking to save the full 20% or you just want to have something for a down payment, use some of the following tips to help:
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Create Your Own Budget
When you are looking to save enough money for a down payment on a home, you need to create a budget. This budget lets you know how much money is coming in each month and how much money is going out. You can’t make any plans in life without having a good look at where your finances are currently.
Once you create a budget and you get a good idea of how much you are spending on the extras like entertainment, shopping, and clothing, you may find places where you can cut back and start saving more.
Many people are worried about creating a budget because they think it is hard or will limit them too much. But creating and then sticking with a budget will be one of the first steps. The good news is that there are a lot of great budgeting methods you can choose from, allowing you to try a few out until you find the method that works for you.
Decide on Your Home Buying Budget
The next step is to figure out how much you would like to spend on the new home. Having this number in mind will help you know exactly how much you need to save up for the down payment and potential closing costs. The most common recommendation is that the monthly payment on the home should never take up more than 30% of your income.
Keep in mind that this number is going to include everything such as the principal and interest on the home, the taxes, and the insurance. If there is an HOA in your area, that should be included in the payment as well. If you are able to find a home for less than this amount, that is even better for your budget too.
With that number in mind, determine how much of a down payment you would like to put into the home. It is best if you can put the full 20% down. This will make it easier to get a mortgage because you look like a lower risk to the bank and it keeps the PMI, or private mortgage insurance, off the loan, making it more affordable to own that home.
Find Ways to Automate the Savings
While it may seem like more fun to spend the money you earn, you need to have some savings going as soon as possible to help with the down payment. Automating your savings can take some of the pain out of the process, making sure that you put enough money back without actively watching that money disappear.
Pick out much you would like to save up for a down payment each month. Then set up your account to automatically move that money from your bank account every month. This allows the savings to grow without you having to think about it at all. If possible, make the savings account available at a different bank so you are less likely to touch it along the way.
Find Ways to Cut Costs
If you are serious about purchasing a home soon, then you need to find ways to cut costs as much as possible. The more you can cut the costs, the faster you can move into the home of your dreams. This is where that budget from the first step is going to come into play. take a look at it and see where you are able to cut down on some of the costs.
You can start out with some of the nonessential expenses. This could be the gym membership (take a walk outside or find some equipment to keep at home), restaurant meals (maybe cut down to once a week rather than three times), and streaming services (do you really need five different ones).
Once you have cut down on those costs, you can look at some of the essential items. Shop around for a more affordable phone company, look into ways to eat at home and cut down on groceries, and even work on the utilities to keep the amount lower.
Consider a Side Gig
Sometimes the trick is to find ways to bring more money in the door. Taking on a side gig can be the solution that you need, allowing you to bring in some more money to save for that down payment a little bit faster.
Whether you do the side gig at home in the form of freelancing or you are looking to take on a second job on the weekend, even a few hundred dollars extra a month can go a long way in helping you save for a down payment.
Saving Up for Your Down Payment
Creating a budget and getting used to saving up money can be great skills to help in all aspects of your life. There are expenses that will come up when you move into the home and if you are already used to saving up, it won’t harm your budget as much. Take a look at some of the tips above and see how you can save up enough to purchase a home.