Tips For Saving For A Down Payment
5 Tips to Save For Your Down Payment
One of the best things about buying a property in a rural area is that if you qualify for a USDA loan, you won’t have to save a lot of money for down payment or closing costs. But on the flip side, you will be slapped with a long-term PMI payment.
In case you don’t qualify for a USDA loan, the best-case scenario is that you have saved at least 20% of a home's purchase price for a down payment, and about 5, 7% more for closing and other additional costs. A 20% down payment means that you don’t have to pay for PMI, and you also have a decent amount of equity in your property going in.
The problem is that 20% can be a significant sum. It’s $60,000 for a $300,000 property, which is more than the after-tax income of a large number of households in the country. It might be difficult, but there are certain tips to help you save enough for your down payment.
Saving for Down Payment
1. Start as early as possible. To put things in contrast, if you have five years to save $60,000, you will need to put away $231 every week. For long term saving such as this, you can also look into investment options or decent savings account, this will allow you to boost your savings, and hopefully reach your down payment goal sooner. If you want to buy a house sooner, you either have to put away a larger piece of your income, or you have to augment your savings by other means (loans, etc.).
2. The best way to maximize your savings is to curtail your spending. If you create a proper budget and stick to it, you will be surprised how easier saving can get. Also, you can cut back on any luxuries or additional expenses, like going out for dinner every week, buying expensive clothes for every season, and taking yearly vacations. Cutting these expenses will allow you to save more and faster.
3. Cultivate an additional income source. It might seem too much, but if you have a second job or a side hustle, just to fund your down payment savings account, you can significantly expedite the process. Additional income from tutoring, simply handyman jobs, freelancing, driving an UBER, making deliveries, or even selling home-made trinkets can help you earn some extra cash.
4. Ask for a loan from a friend or family. It might not be the best to move socially, but it's a very smart financial decision. These home loans don’t come with killer interest rates of personal loans or stringent requirements of a mortgage. Even if you compare choosing a mortgage where the cost of a down payment is rolled into your mortgage, to borrowing interest-free/less interest from a friend or family, you will save a significant amount of money choosing the latter option. Ideally, you should have some savings yourself, and you only ask for a loan to cover part of the down payment.
5. Sell some of the things that you can do without. If you have a nice expensive truck that’s just your hobby and not actually necessary for your work, you can trade that for a functional and cheaper vehicle and some cash you funnel towards your down payment. Similarly, expensive watches, video games, furniture, and collectibles, all of these can boost your savings.
Saving for a large down payment might require you to exercise brutal financial discipline, and let go of some of your cherished things. But you have to understand that buying a home is more than just a convenience. It’s liberation from dead rent money, building a powerful financial asset, and a major step towards financial freedom.
Jefferson Real Estate
Office Phone: 719.836.2615