As rent prices go up each year and with interest rates at a low point, the urge to buy a home grows deeper for a lot of us. Saving money for a down payment to own a home isn’t always easy though. Depending on the type of loan you decide to go with, you’ll still need a significant amount of money to put towards a down payment.
Typical Mortgages & Down Payment Amounts
There are different types of mortgage loans you can choose from. Each will require different down payment amounts and interest rates will be different for each as well. One important thing to know about mortgages is that if you want to avoid paying mortgage insurance you will more than likely want to put down a down payment of at least 20%.
David Richardson from PropertyManagemently mentions, "For government-backed loans like FHA loans, you can put a downpayment as low as 3.5% of the home’s value while paying a reasonable interest rate. The downside of this is that you will need to pay mortgage insurance for the entire life of the loan. For veterans who qualify for VA loans, you don’t even need a down payment".
"If you’re not aiming for a government loan, then you might find yourself getting a conventional loan which typically gets a lower interest rate than government-backed loans but does require a higher down payment amount usually a 5% minimum," he adds.
With that in mind, here are a couple of steps to take in order to save up for a home.
Set Clear Goals
While it may be easy to tell yourself that you plan on saving a specific amount of money by next year, without setting clear goals you won’t reach that goal. You need to establish clear numbers to make it easier on yourself. Figuring out how much you’re going to put down for a down payment is one thing you need to figure out if you want to have enough money for it eventually. This figure can vary from 3.5% to 10% or all the way to 20% in order to avoid paying mortgage insurance.
The figure you aim for will more than likely come down to the type of loan you’re taking out so you should also be aware of that. The amount you need will also depend on how expensive of a home you’re buying. You should have somewhat of an idea of the price range for the home since you want to buy one that you can actually afford.
Reduce Your Current Expenses
You’ll want to take a look at your current finances and see where you can save. Take a look at what you can save on like riding the bus to work instead of taking a car, or drinking coffee at work instead of going to Starbucks every day. Eating at home instead of going out is a very simple step which can save you a lot of money overall. Even the simplest of things can quickly start to add up.
Another easy way to cut down on current expenses is by looking at your current memberships and subscriptions. Are you still paying 20$/month for the gym that you don’t even go to? What about that $12/month Hulu subscription when all you watch is Netflix? Or maybe you just forgot to cancel your free trial for Apple Music that is currently costing you 10$/month.
Use Technology For Help
There are all types of helpful software out there like websites and mobile apps that can help you save towards a down payment. Mobile applications like Mint or Clarity Money provides financial suggestions in order to meet your goals. Other apps can even collect extra change from financial transactions you do and put them towards a special savings account just for a down payment. You can fill out financial calculators online to get a general idea of how much you need to save each week/month in order to meet your savings goals.
Start A Side Hustle
Assuming you or your spouse is currently working part-time, can one of you try and work an extra 10 hours a week every other week? You don’t have to start a business but even working jobs like Lyft/Uber driver, or babysitting kids on your time off can help you save up more money for a home. If you can convince yourself to put all your earnings from your side hustle towards your savings for a down payment, then rest easy knowing you’ll accomplish your goal.
Look At Government Programs
You can find several government programs at the state and federal levels to help you put money towards a down payment. Try researching the local programs in your area, either by talking to a bank employee or your local free housing counselor to get help to buy a home. Chances are there exist an organization or there is a local government program that can offer down payment grants to first-time home buyers.
Your home is one of the most important financial investments you’ll make in your life. In order to save money up to buy one, you should have a structured plan in place to reach those goals. By having actual numbers in mind and a structured set of steps to take you can make the dream of owning a home a reality.