How to Save for Down Payment on a Home
Home is where the heart is, but if you’re starting to get sick of renting your home it may be time to set a plan in motion to buy a home in the near future. Saving for a major purchase like a home may feel daunting, but the steps below will put you on the fast track to having a big enough down payment to buy a home in no time.
Figure Out How Much to Save
Figure out how much you will need for a down payment on a home. Look at listings in your area and consider what you’re looking for in a home. Do you want a house or a townhome? Do you need spare bedrooms or can you live in a smaller space? Take an average of the listings that appeal to you and use that as the target price of the home you’re interested in. Then, consider how much you want to put down. If you put 20% down, you can avoid private mortgage insurance (PMI). Figure out what 20% of your target home price would be (or whichever percentage you are aiming for) and use that as your savings goal.
Consider Closing Costs
In addition to the down payment that you’ll need for the home itself, you’ll also need to consider the cost of closing costs or other expenses related to buying a house. Closing costs can include homeowner’s insurance, property tax, attorney fees, appraisal and survey fees, home inspections, and more. Typically closing costs are between 2 and 5% of the home’s value. There are several online calculators that can help you determine the average closing costs in your area so you can add that expense to your savings goal calculation.
Consider Moving Expenses
Depending on how far away you’re planning to move when you buy your home, you may need to factor in moving expenses. If you have to hire movers, the costs of moving can range between $1,000 all the way up to $5,000 and more depending on how much stuff you have and how far you’re moving.
Where to Save the Money
It’s best to keep the money for a down payment in a high-rate savings account, money market account, or CD. The money for a down payment for a house isn’t typically money you would invest, since you’ll need it sooner rather than later and you don’t want to risk lose money while you’re trying to grow it.
Assess Your Budget
When you have a new savings goal, it is always a good idea to take a look at your budget and assess where you can cut back in order to fuel your goals. You may have to make some short-term sacrifices like cutting back on eating out, entertainment or a vacation but in the long run you will thank yourself when you’re enjoying your new home.
Pay Down Debt Strategically
It’s typically smart to pay off debt prior to starting to save for a down payment, but if you’re planning to do both simultaneously, it’s best to focus on the debt with the higher interest rate. Losing money to interest payments will only make it take longer to reach your goals. If you can, try to consolidate your debt to a lower interest rate, or call your credit card company and try to negotiate a lower rate.
Increase Your Income
During the time period that you are saving money, consider ways you can increase your income. It may be worth it to take on another job or try a side hustle. You can also sell things you already have. Maybe it’s time to go through your belongings and have a garage sale.
Sell Some Investments
If you have money invested, now may be a good time to cash out and use the money toward your new home. Certain retirement plans will also allow you to use the money in those accounts toward home purchases.
Research Down Payment Assistance Programs
You may qualify for certain housing assistance programs, like the Federal Housing Administration, the US Department of Agriculture Rural Housing Service and the Veterans Administration, or a program for first time home buyers. These programs are designed to make housing more accessible.
Contact a Member of our Team
No matter where you are in your journey to homeownership, our local team of mortgage experts is ready and willing to help answer any questions you may have. Visit the mortgage page on our website and contact a member of our team today.