Buying a house on an average salary in today’s economy might feel like an impossible task. After all, you have to pay rent and think of all your current expenses and retirement fund while saving money for a house. However, with the right tips and commitment to save, you can purchase a home sooner rather than later in life. All you need is to define your goals and stick to your savings plan to achieve your goals.
So, let’s explore some ways to save more money for your down payment!
8 Tips for Saving Money for a House
Here are some tips you can use to save money for a down payment on your mortgage:
Have a Well-Defined Savings Plan
The best strategy for saving money for a house is to estimate the amount you will need. Firstly, you will have to define your budget, i.e., how much you’re willing to and can spend on a down payment for a house mortgage. Don’t forget to add the cost of the fees and any additional payments you might have to make when receiving the mortgage.
The answer will be determined by your income, lifestyle, and financial plans. Ideally, you should aim to pay at least 20% of the mortgage as the down payment as it will save you from paying the private mortgage insurance, an extra fee added to your mortgage as the lender’s protection. Even if you cannot save 20%, aim for 10% to keep yourself from paying high interest on the loan.
You will also need to ask yourself how long it will take you to save money for a down payment. It can be two years or five years, depending on your other financial and future security goals and your circumstances. Once you have defined the amount and the time it will take you to save it, split the amount by the number of months to determine the amount you’ll need to put aside each month to meet your goals.
Open a High-Yield Savings Account
Make sure to open a high-yield savings account or a money market account as they provide you with higher interest rates than a traditional savings account or a checking account. This way, your money will grow as you keep saving it. You can also consider putting your money in a separate bank to keep it out of sight. However, if your timeline exceeds five years, you might benefit from accumulating your savings in a high-yield CD. Your money will be tied up and remain safe while allowing you to earn more interest from it.
Automate Your Saving Transfers
Automation is surely a sound financial strategy as it will take the legwork out of the equation and remove the temptation to spend the savings amount. So, make sure to set up automatic saving transfers for each month. This way, the amount you have defined as your savings for your mortgage will be transferred to your savings account on a set date.
Find Extra Work
If you’re still unable to save as quickly or as much as you’d like for your down payment, you can find a couple of odd jobs to do during the weekends or in the evenings. You can house-sit, walk dogs, do yard work, become a tutor, drive for a ride-share service, or use any skills that you might have to earn more. Make sure to save all your extra income for your mortgage.
Pay Off Your Debts
Yes, you don’t need to be entirely debt-free to buy a house, but if you have considerable credit card debt, it will affect your ability to find the type of loan you need for your home without paying exorbitant interest rates. Moreover, your debt will also keep collecting interest, which will be detrimental to your saving plans.
Plan to Increase the Savings Rate
If you’ve done your math and cannot save a lot on your current income, don’t restrict yourself to the same amount once your financial condition improves. If you receive a salary increment within your savings timeline, make sure to utilize it to reach your target quickly. A little flexibility from your end can help you save more money for your down payment. You can bump up your automatic transfers to resist the urge to spend the extra earning.
Save on Your Rent
When planning to save money for a down payment, you will need to consider all possibilities to save as much as possible. It might include making some tough lifestyle choices, such as moving to a cheaper place to live in, especially if your savings plan is stretched out over multiple years. It will help you save hundreds and thousands from the rent money that you’d have had to put aside each month when living in a pricier home.
Save on Extra Expenses
You might have to make some compromises on your lifestyle as well. It might hurt temporarily, but you will need to assess your life and determine where you can make the cuts to achieve your bigger dream, i.e., your dream house. So, if there’s a gym membership that you don’t use, cable TV that you don’t watch, or subscriptions that you don’t utilize, it’s time to stop spending on them and put that amount toward your savings.
You can also skip the summer vacations that you plan every year and put that amount toward your down payment. If you have extra stuff lying around your home that you don’t use, sell it on Facebook Marketplace or eBay. Additionally, save all the money that you receive in the form of annual appraisals or bonuses, such as your Christmas bonus. You can also save up on other expenses, such as take-out, shopping sprees, and impulse buys.
You can also do the following:
- Get credit cards that offer rewards on spending.
- Always take advantage of your freebies, such as free Wi-Fi, food, and furniture, to save up more.
- Use coupons and deals to save more.
The Bottom Line
Saving money for a house isn’t always easy, but you can use smart saving techniques and plan strategically to save as much and as quickly as possible. If you follow the tips mentioned above, you can save for your down payment and move into your dream home soon! When you’re ready, contact Integrity Mortgage and we’ll help you find the best loan for you.