According to a study published by The Ascent, 56 percent of Americans have $5,000 or less in their savings. When you consider that, it’s easy to see why the prospect of coming up with a down payment can be so daunting for would-be homebuyers. For many people, learning how to save for a down payment is a crucial step in the journey to homeownership. Fortunately, there are several tips and tricks that you can use to make this process easier.
How to Save for a Down Payment
If you’re eager to put together a down payment, but you aren’t sure how to do it, then you might want to break the task into two parts. The first challenge is identifying the process that you can use to actually save the funds for your down payment. The second challenge involves coming up with those funds.
Plan to Save for Your Down Payment
A plan that makes clear what you hope to achieve and how you intend to do it will increase your odds of success. If you are wondering how to save for a down payment, Experian suggests taking care to include all of the following pieces in your plan:
- A Goal: A 20-percent down payment offers real advantages, so it’s a great goal. However, it isn’t a necessity. Loans are available with much smaller down payments – some even offer 100-percent financing! In fact, the average first-time buyer puts down just 7 percent. Do your homework, run some numbers, and decide how much you’ll likely need to have on hand for a down payment. Then, use that figure as your savings goal.
- A Time Frame: Do you hope to buy in a year or five years? Thinking about when you plan to buy lets you calculate how long you have to save.
- A Place for Your Savings: Set up a separate account for your down payment fund so that the money doesn’t slip away from you. Many people find a high-yield savings account is the ideal tool for this. If possible, set up automated transfers to ensure that this account is properly nourished.
- A Budget: Track your spending and put together a budget that includes a contribution to your down payment fund. Ideally, there will be both regular monthly payments and extra contributions as any additional money comes your way.
Finding Funds for Your Down Payment
Where can you find funds for your down payment? Dave Ramsey offers several solid suggestions:
- Trim your expenses. Letting your gym membership lapse for a while, eating in instead of going out, cutting cable, opting for generic brands at the grocery store, and forgoing vacations can produce substantial savings and put you that much closer to your dream of being a homeowner.
- Take on a second job. In today’s gig economy, it’s easy to use your talents to make cash in your spare time. If you enjoy teaching, consider tutoring online. If you love animals, try your hand at pet sitting or dog walking. If exercise is a passion, find a local sports league that is looking for referees.
- Sell stuff. Whether you opt for online auctions or an old-fashioned yard sale, raising cash by selling stuff you no longer want or need is a win-win scenario. You get extra cash and more space.
- Review your savings strategy. Retirement savings are important, but you may want to consider temporarily dialing them back until you have your down payment.
- Use windfalls wisely. Gifts from family members, inheritances, bonuses at work, and other windfalls are all fantastic additions to down payment funds.
If you have questions about how to save for a down payment, how much of a down payment you’ll really need, or how much you can afford to borrow, turn to the loan experts at PrimeLending Dallas. With our commitment to friendly, personalized service, we listen carefully so that we can offer useful guidance that will help you achieve your housing goals. Contact us today to learn more about our services.