15 Oct Steps to Save for Your Down Payment
Tired of apartment living or roommates? Ready to take on the mantel of homeownership? Good for you. This is likely to be the largest financial decision you make for a long time.
How much money have you got saved for the down payment? Whoa!!
Hadn’t thought about that? Then, it’s time to take a pause and set your sights on savings for a down payment.
This is doable and shows planning on your part. Getting prepared for homeownership will save you potential stress/anxiety in the long run. Being ready with realistic visions of your first home with your financial homework done is a boost to you, your realtor, and your mortgage holder.
Let’s get started! According to Dave Ramsey, noted for his financial expertise and practical guidance, there are five basic steps to saving money for a down payment:
Know how much down payment you will need.
This may involve the pre-approval process with your mortgage lender to determine how much you can afford on a home. A 20 percent down payment is ideal; you won’t need private mortgage insurance as a result. But you can also qualify for an FHA loan with only 3%!
A side benefit may be that if you implement Ramsey’s recommendations, by the time you’ve saved your down payment, you may also be able to look for a home in a higher price bracket.
Review your budget and adjust as needed.
That budget again! Take a hard look at monthly expenses and eliminate those items you don’t need or use. Reduce the amounts on other line items. For example, reduce the number of times you eat out and put that average amount into your down payment savings account. Buy generic whenever possible. Eliminate your cable bill and gym memberships. Any monies reduced or eliminated go directly into the down payment account.
Forego retirement investment, for now (and only if you have no other means of saving!).
Rather than putting that monthly percent of your salary into your retirement account, put it into your down payment account for the short-term. This does not mean that you take a loan or cash out from your retirement savings; no one wants to deal with those tax penalties. Instead, the savings is from future investment amounts only and for the time needed to get the down payment in place. After that, restart your retirement savings investments.
Do you have a skill that translates into extra money that would not interfere with your primary career? Perhaps you love walking your dog and would enjoy starting a dog walking service. Excellent organization skills benefit many. Love to shop? How about a personal shopper service?
New money coming in?
Did you get a raise, promotion, or bonus? Where to put that money? You guessed it! Right into the down payment fund. It’s painless and easy to save when the money doesn’t go into your general account first.
Bonus Tip: Find a good lender early.
A good lender can help guide you in the preparation to save for your down payment (and I’m happy to make a recommendation!). Plus, they can help guide you to find the right loan type for your situation. For instance, conventional loans are the most attractive to sellers, especially with multiple offers, but if you don’t qualify — there are other options!
Once you have your down payment set aside, let’s go find your new home.
You may find that these savings habits serve you well for future plans. You’re also likely to find that you don’t need as much as you once thought.