How to Save Money for a Down Payment
The U.S. home rent costs are higher than ever before, costing an average of $1,405 per month across the country.
Therefore it’s not surprising that more and more people are seriously considering buying their own place to lower the amount they have to pay every month.
However, that usually involves a loan, which requires a down payment. And that’s where things can get tricky.
Saving up a substantial down payment isn’t easy, and many people struggle with setting aside money each month, even though a larger down payment usually means lower monthly payments and better rates.
So, to help you get started, let’s go through everything you need to know about how to save for a down payment.
Know Where You Stand
Before you can start accumulating money every month, you will need to establish how much you need to save to buy the home that you want.
When trying to figure out how to save for a down payment, having an end goal in sight can make it easier to set aside the money and make compromises regarding your monthly expenses.
But how do you evaluate your current situation?
Look into the types of homes that you want and try to get an idea about the amount of money it would require.
Then, calculate the down payment you would require to buy that type of home so that you can have a specific figure to work with.
For instance, if you want to buy a home for $200,000 and want to put down 20%, you would need to save $40,000 before you can apply for a loan.
Finally, look at your current income and think how much you could set aside each month, as well as how long it would take to put that amount together.
After you complete these steps, you’ll start developing a more detailed plan of action and think about the various details that go into saving for a home.
Start with a Clear Goal and a Plan
Once you identify your goal amount, you can start putting together the steps that you will need to take to achieve your goals.
Let’s go with the previous example again and say that you want to buy a home for $200,000 and want to put down $40,000 when you apply for the loan.
Now, let’s also say that you make $50,000 per year and can set aside 20% of your earnings every month.
If that were the case, you would end up saving $10,000 per year and would need four years to accumulate the money necessary to make the down payment.
When figuring out how to save for house down payment, putting everything in specific numbers can be immensely helpful. That way, you’re not looking at a vague idea of what would need to be done, but can start breaking down the amounts into actionable steps you would need to take.
Most people can imagine how 20% of their monthly expenses look like, and if you do too, you can start looking into ways you could begin to cut costs, which is an integral part of saving for a down payment.
The Best Savings Accounts for Your Down Payment
When you’re learning how to save for a house down payment, you want a place where you can put your money securely and with as little risk as possible.
Sure, you could potentially get higher returns if you try to invest the money that you save, but no potential earnings could make up for the possibility of losing some of that money, which could realistically happen as well.
That’s why a savings account is always a good option when putting money together for a down payment. You not only get some returns on your investment but also have your savings insured by the FDIC up to $250,000, giving you peace of mind that your down payment is safe.
But what are the best savings account options for a down payment?
UFB Direct’s Money Market Savings Account is a good option, offering 2.25% APY (Annual Percentage Yield) and an affordable $10 per month fee that can be waived if you maintain a daily balance of over $5,000.
If you’re looking for a good option that’s also free and doesn’t have a minimum balance requirement, you can’t go wrong with Synchrony Bank’s High Yield Savings Account, especially if you plan on saving a more substantial amount.
Expenses to Cut Down On
Setting aside a significant amount of money every month can be challenging, but it’s the only approach if you want to figure out how to save for a downpayment on a house fast.
Luckily, there are plenty of ways you can cut down expenses and generate money quickly, especially if you’re willing to make some sacrifices.
For one thing, you could skip your bigger vacation plans and instead opt for a simpler and more affordable local trip – that alone could be the single fastest way to save for a down payment.
You could also reduce the number of times you go out per month – saving even a couple of hundred dollars per month can add up to a substantial amount over the course of a year.
Shopping is another area where it’s possible to reduce expenses. Buying more affordable brands can get you to your goal quicker and allow you to get back to the lifestyle that you’re used to.
If you like to go to an expensive gym, you could consider switching to a more affordable one or even exercising at home or at the park.
Finally, consider how much you spend on home entertainment such as video games, streaming subscriptions, or cable, and look at some areas where you could reduce your expenses without losing too much.
A Step-by-Step Look at the Saving Timeline to Aim For
In this article, we explored some of the most critical aspects of how to save for a down payment. But at this point, putting them all together might still seem complicated.
So, let’s go through a step-by-step look for how to set up a realistic timeline for how to save for a home that will give you clarity and the confidence that you can get it done.
First off, you need to make sure that you don’t have any outstanding debts that could prevent you from setting aside money or even from getting a loan when you’re ready.
After evaluating your current financial situation, you’ll need to establish clear goals and map out the steps for saving money.
These steps include both potential ways to speed up the timeline by increasing the amount you set aside, as well as the options for cutting down costs that will make room in your budget.
Once you have everything in place, a timeline should come into focus, showing you the specific month when you should have the full down payment amount if everything goes according to plan.
Tips for the Fastest Way to Save for a Down Payment
Cutting down your expenses is a crucial step of how to save for a down payment. Still, it’s only part of the equation – you will also need to figure out if you have options for increasing your income or getting additional resources so that you can get the loan faster.
People that want to speed up their down payment saving deadline sometimes decide to pause their retirement savings, as that gives them more financial flexibility each month.
In fact, some people even borrow from their retirement plan, especially if they can’t wait too long to make a purchase and want to take advantage of favorable market conditions for buying the home that they want.
If you have investments and assets that you have accumulated over the years, selling them could provide you with an instant financial boost that could even be enough to cover a big part of the down payment that you’ll require.
Finally, if all else fails, you could go to your family or friends and see if they would be capable and willing to provide you with a loan that you could pay back gradually over the next few years.
How CreditAssociates Can Help with Down Payment Debt
As we briefly mentioned before, saving for a down payment often depends on your ability to pay back your outstanding debt, as that will not only give you more financial flexibility but will also help you get a loan once you are ready to apply for it.
At CreditAssociates, we have the experience to help you figure out your financial situation and find the best approach for dealing with your debt. We have experience helping thousands of Americans reduce debts and meet their financial goals. Whether it’s debt relief, or simply guidance on best practices, we are here to provide aid in a friendly and confidential manner.
After all, managing your debt is a key factor if you want to take out a loan or save for a downpayment – it’s the only way to ensure that you get reasonable rates and that you have enough spare income to set aside money.
If you feel like your debt is just too big, we can help you renegotiate it down and settle to pay a lot less than you owe right now.
Saving for a down payment is a crucial step in buying the home of your dreams. But to figure out how to save for a down payment, you need to not only have patience and discipline with your finances but also the knowledge of how to best approach it in your situation.
And that’s where CreditAssociates can help – we can help guide you on how to manage your finances, and reduce your debt in as little as 24-36 months. Contact us to learn more!