Table of Contents
Discover What You Need To Learn About Saving Money For A Down Payment On A Home!
Many potential homebuyers know the difficulties of getting a new home. From finding an affordable home price to competing with multiple offers, buying a house can feel like it’s impossible. However, the biggest challenge in getting a home is saving money for the down payment. Since home prices are rising again in America, saving for that important payment can seem far from reality.
In case you don’t know, a down payment is the portion of your home’s purchasing price that you pay upfront when you get a mortgage. Several lenders recommend buyers to put 20% down on a house, but you don’t necessarily have to follow that guideline. In fact, according to the National Association of Realtors, the typical down payment for a first-time buyer in 2023 was 8%. While a 20% down payment can lower your monthly payments and eliminate private mortgage insurance, it is not a requirement to put that amount, depending on your loan and the lender you decide to work with. Still, saving enough money to pay a percentage upfront of the home’s purchasing price is important if you want a reasonable monthly payment.
Fortunately, saving for a down payment can be easier than you think. Just follow a few tailored methods to spare enough money for that critical payment! Take a look at this quick guide on saving for a down payment on a home and what you need to know:
Create A Budget For Your Down Payment
Having a budget can help you keep track of your expenses and save enough money for a down payment. But to accomplish that goal, you must determine how much you’ll want to spend on your potential home. If you’re looking for an expensive property, you may have to put a sizable down payment to obtain the mortgage and avoid foreclosure. However, depending on your loan, a lender may require you to submit a specific amount on your down payment in order to secure a mortgage loan.
Once you determine how much you plan to spend on your home’s price, it’s time to find an effective budget strategy. While several methods are available, you can always choose the approach of dividing your expenses into fixed and variable categories. Fixed expenses are those that will not change every month, while variable expenses can vary. Simply put, fixed costs are recurring payments, like your mortgage, car payments, property taxes, or other loans, such as a vehicle equity loan from LoanMart. Variable expenses can be unpredictable payments, including entertainment, dining out, groceries, and car repairs.
Fixed expenses are difficult to change, while your lifestyle can influence your variable costs. If you cut back on your variable expenses, you can save plenty of money for your significant charges, like your down payment. Consider building an emergency fund to prepare yourself for any circumstances affecting your budget.
Put Your Down Payment Savings On A High-Yield Account
Many experts recommend that people create an exclusive savings account to make their down payment. But wouldn’t it be nice to earn money while you save? If you open a high-yield savings account, you can expand your funds through compounding interest! Of course, you still have to pay that interest, but it’s possible to earn more money than a regular savings account.
It’s important to note that other accounts, like money market accounts and certificates of deposit (CD), can help you earn interest on those funds over time. However, both accounts have limitations that won’t benefit you in the short term. For example, money market accounts require you to shop a lot before earning a sizable return. With CDs, you generally won’t have access to your money for over six months unless you pay a fee to withdraw it. While high-yield savings accounts also have limited accessibility, you can actually take out money six times a month.
Don’t hesitate to contact a financial advisor today if you want more information about the best savings account for you. No matter which account you choose, ensure it meets your needs and helps you save money for your down payment.
Earn Money With A Side Job
Cutting down your expenses is a great way to save money for a down payment. However, if that’s not enough to meet your payment, you can do some side gigs to help you earn cash. You can freelance and monetize your skills to make money online or use your knowledge in a field to tutor people from home. Nowadays, people take jobs on Uber or Lyft to drive people around,which can be a great gig to earn additional income. However, if you like laid-back activities, consider taking online surveys to earn at least $1,242 a week.
The fact is that there are several side jobs that cater to different preferences. Simply research side hustles online and find the right gig to help you accrue money for your down payment. But be aware that many extra jobs may not grant you significant amounts of cash. Use a side hustle as a second means of income in addition to your career.
Automate Your Savings
Setting up predetermined, automatic transfers to your savings account every time you receive a paycheck is an easy way to save for a down payment. You won’t have to worry about manually depositing your funds and avoid the issue of making reminders every payday. By automating your savings, you can transfer a percentage of your paycheck into your account without lifting a finger. Suppose you have problems controlling your spending habits. In that case, automatic transfers can be a great method to prioritize your down payment since you wouldn’t have the chance to spend that money.
Be aware that adding bonuses or tax refunds to your savings account can help you earn even more cash for your down payment. However, most savings accounts have a limited number of distributions you can make annually, so be cautious with your transfers. Keep track of your automatic deposits to ensure you’re not short on cash when the next transfer date arrives.
Bottom Line: Saving For A Down Payment Takes Effort
As you can see, saving for a down payment on a home takes effort. While the saving methods are relatively straightforward, you must still have an active role to achieve your objective. However, before you begin saving, it is important to determine how much you’ll be willing to spend for a down payment. If you’re working with a real estate agent, you can ask them for advice on what you should pay based on your budget. Yet, no matter what you decide, you must prioritize your down payment and save enough money to obtain your property! Research different techniques online to start your path to owning the home of your dreams.