8 Tips for Saving Money for a Down Payment on Your First Home
Buying a house is a big deal, so we’ve compiled some of our favorite tips on saving more cash every month
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Looking to purchase a home? There are a lot of factors that go into purchasing a house, and the financial aspect, especially the down payment, is high on that list. Down payments are often 20% of the house’s mortgage, making it a large sum of money due all at once. Without the proper planning and forethought, the finances surrounding the purchase of a home can get tangled and frustrating.
Buying a home is stressful enough as it is. It is important to save up money to help pay the down payment on your first home, and in this article, we will discuss some of our favorite money-saving methods. We also highly reccomend that you look into a Home Warranty as well, as this is a very important part of the home buying process. We've found a great guide for you to checkout here.
Read on for more information about:
- Creating a budget that works for you
- How to save up for your down payment
- How to stabilize financially after you purchase your new home
Preparing for Your Down Payment
The down payment of your new home is a huge expense when you purchase your home. Having enough money saved helps for the purchase, and stabilizing afterward. Image courtesy of Zillow.
There are a lot of ways to save when it comes to saving money for your down payment. It all boils down to the amount of money you make each month versus the amount of money you spend each month. Yes, that is obvious, but it is important to keep in mind when you are working with your budget to start saving.
How much time do you have?
Everyone enters the house hunt at a different financial point. If you need to find a home in the next three months, your options for saving are limited. Many of these strategies work a little every month, so implementing them for a year or more is when the results really start to quantify in amounts significant to your down payment. That being said, every little bit helps! Even if you only have a few months, starting those budget changes to save some extra money each month is still important, as you will have to adjust your financial lifestyle as a homeowner.
Buying a house
A lot goes into the down payment of your first home. It is most likely the largest purchase you have ever made, and it is important to understand all the moving parts so the whole event goes as smoothly as possible. Research the area you are looking in, see if it is a buyer’s market or a seller’s market, and figure out how much money you are willing to spend on your home.
Setting a limit on the cost of homes you are looking for is crucial to keep you from finding yourself in a tight financial situation. Figure out what your range is and look for homes within that range. Once you set your range, you can figure out how much you need to save to make it a reality.
Your down payment
Often, your down payment on your first home is 20% of the purchase price. As a first-time buyer, you have access to additional programs and loans that can help you with your down payment. Alongside that, it is up to you to save the money for your down payment. There are a lot of ways to up your savings! Unfortunately, many of them are sacrifices on your end to spend less shopping or going out, but it will be worth it!
When purchasing a home, your down payment and mortgage go hand-in-hand. Your down payment is most likely going to be the most money spent at once going towards your mortgage, and the two are tied together. Make sure to check your mortgage and make sure it is pre-approved. This also helps you figure out what price range you are prepared to bid for your home.
Make sure not to overbid! If your bid on the home exceeds your mortgage approval, you’ll have to pay the extra out of pocket.
Ways to Save More Money Every Month
There is no secret to saving money. It starts with you, and how you handle your funds. Fortunately, there are many angles of attack when it comes to figuring out how to save money for the down payment of your first home. Buying your first house should be exciting, but it is important to make the right financial decisions leading up to your down payment. To make sure you are in the right financial position to make a down payment on your first home, here are some of our favorite ways to save some extra money for it.
Allocate money into your savings account
If you start early, adding set amounts of money into your savings account is a great way to build your savings. If you decide to do this, it is important to think of this amount as a mandatory monthly expense. When you are trying to save up money, it has to be a top priority. It is easy to start a plan of saving, say, $50 every month, but it is much harder to execute.
Even $50 a month becomes $600 every year. $100 becomes $1,200. As long as you have the time, this is a great way to build your savings.
Figure out how much money you need to save
Everyone enters the housing market in a different financial position. Before planning out an intricate budget and cutting expenses out of your monthly budget, it is important to know what your goals are. Needing to save $1,000 over one year versus $10,000 over three years warrant significantly different budget changes.
Once you figure out your overall savings goals, you can start finding how much money you need to save every month. We recommend making that dollar amount an expense, like a bill, that you have to find a way to pay each month. That is a little way to trick your mind into thinking of it as a mandatory cost, not just something to throw money at when you have extra lying around. It is hard to see the bigger picture that comes with saving money, but it is crucial to pay the down payment on your first house, however many months down the road that is.
Peek at your spending habits
This is another huge step. Without knowing where your money is flowing it is impossible to know how to divert some of it back into your savings. Try to find every purchase you’ve made in the past few months. The further you go back the better the averages will be, but normally a few months is sufficient.
Plan out categories that work for you. Essential expenditures, like groceries, rent, utilities, and transportation are good places to start, then think of what non-essential spending you partake in. Categories like entertainment, food, takeout, traveling, vacation, alcohol, or clothing are all possibilities. There is no need to create a dozen categories — having large, umbrella categories where you can confidently place many purchases give you plenty to work with.
Check your list of expenditures for obvious places to start. Things like eating takeout or going out to eat, monthly subscriptions, sports tickets, shopping for clothes, and many more can jump out at you when you put all of your expenses in one place. Perhaps Amazon shopping is your weakness, and you get things that you don’t really need. Cutting out subscriptions or finding cheaper meals, like cooking dinner instead of ordering out, are great ways to start saving money every month.
If, for instance, you lessen your takeout budget from $100 to $75 a month, you have an extra $25 to spend on groceries, but you may only spend an extra $10 on groceries to make up for the extra cooking. There’s $15 towards savings each month.
Make a grocery list before shopping
Do you often fall victim to impulse buys at the grocery store? If you prepare a list beforehand, you can evade the temptation of the sweets and the snacks and the bubbly water with real fruit flavor that you know you don’t need. Preparing a list beforehand also normally shortens your grocery trip, leaving you with a bit more time in the day!
Start a side hustle
Starting a side hustle is a great way to add a little income each month. These days, there are opportunities aplenty for you to dust off your marketable talents and pick up a few gigs. There is a lot of freelance work out there, in writing, photography, and art that allows you to work a few more hours each week and make a little extra cash. Take care if you decide to freelance. It is all too easy to browse and search for hours without finding anything, or in a rush of excitement accept a gig that pays too little for too much work.
Alongside freelancing, being a driver for ridesharing and food delivery companies are another great way to add to your income. You can even put the money you make from your side hustle straight into your savings.
How to Prepare for Your New Home
Purchasing a home is an immense moment, and feeling a mixture of excitement and nervousness is normal! Making the down payment will probably consume the majority of your savings, so now it’s time to recover with this new mode of operation. You’ll have a house! That is cause for celebration. And, to sweeten the deal, all those money-saving strategies from before still work just as well.
Create a new budget
Moving from a rented place to a home you are paying mortgage on has most likely shifted your essential and non-essential expenses. That means it’s time for everyone’s favorite pastime — budgeting! Although it is not the most fun, it is important to repeat your process when you created your last budget. Figure out what all of your expenses are and divide them into categories to see your spending habits.
From there, as before, find places where you can cut back on spending and divert more to rebuilding your savings account. Even before that, however, you should create an emergency fund.
An emergency fund is usually a sum of money that is equal to three to six months’ worth of saved and accessible funds. Having this amount of money saved is crucial to dealing with, well, emergencies. This should be one of if not your first financial priority upon purchasing your new house, and we would recommend upping your budgeting practices and saving more until your fund is filled again.
Having an emergency fund gives you enough financial flexibility to weather a lot of what comes unexpectedly, helping you get back on your feet should an emergency hit. Another budgeting tip — you can have multiple levels of money-saving practices for different times in your life. For instance, when you are rebuilding your emergency fund you can enact the strictest budgeting plan, but a year or two down the line your plan could look very different with less money allocated into your savings each month. Your budget can vary every month, too, reflecting upcoming expenses.
Set reasonable goals
Especially after large purchases, it is tempting to set impossible financial goals. Resist the urge! Sit down and think about a handful of reasonable and achievable goals on both the short- and long-term. Setting unreachable goals can lead to unnecessary stress and feelings of failure. How do your finances look right now? What money-saving tips are you planning on following going forward? Let us know in the comments!
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