For many, saving enough for a down payment is the hardest obstacle to overcome while trying to achieve the dream of homeownership. Let’s face it—there are no quick fixes or instant shortcuts when it comes to saving for a down payment.
But with a few clever tricks and some dedication, you’ll be on the path towards homeownership.
If you’re aiming to save for a down payment, try using the following tricks:
1. Know how much you need. Find out what loan programs you can qualify for, and how much home you can afford by using the mortgage calculator. Some loan programs, such as FHA, VA and USDA, require little-to-no down payment for buyers who qualify. In some instances, banks and mortgage companies, such as TowneBank Mortgage, offer up to 97 percent conventional financing.
However, there are some benefits to a large down payment. Buyers with down payments of 20 percent or more tend to get better rates than those that don’t because they are less risky for the lender. They’ll also avoid paying private mortgage insurance, a monthly payment that protects the lender against loss in case the borrower defaults. Speak to a qualified TowneBank Mortgage Loan Officer to determine the best options for you personally.
2. Squirrel away. Think carefully about how you can cut costs each month. Dining out less, eating in more and cutting back on Starbucks is a good way to start, but it won’t earn you a down payment. Think about creating a monthly budget that sets aside a certain amount each month towards your down payment. A good way to do this is to set up direct deposit to automatically deposit part of your paycheck into a separate savings account. You’ll save money without thinking about it.
3. Use your savings to your advantage. If you know it will be a few years before you’re ready purchase a home, consider putting your savings into a certificate of deposit. By doing so, you agree to hold your money in the bank for a fixed amount of time. In exchange, you’ll receive a higher interest rate than usual checking and savings accounts.
4. Ask family. It’s perfectly legal for individuals to help contribute toward your down payment. However, there are a few guidelines when it comes to receiving these gift funds. Any individual can gift another individual up to $14,000 per year, tax free. Your lender will need to insure that these gifts are truly gifts, and not loans. You will need to have paperwork backing up these gifts, or the mortgage company will not accept them.
5. Cut your rent payments. Add a roommate to split costs. If your current apartment is eating up most of your paycheck, think twice about renewing your lease. Move to a less trendy neighborhood, or a no frills apartment complex. Then take that extra money and put it into savings each month. It might seem like a huge sacrifice, but you could save hundreds of dollars each month by doing this.
6. Add to your income. Don’t want to give up your lattes or your trendy apartment? Work extra hours at the office, take out a second job or freelance your talents to add some extra income. Put this money into your down payment savings.
7. Set aside extra income. Many of us are tempted to blow our tax returns or birthday money on shopping sprees or big ticket items. Consider putting all unexpected income, such as tax returns, gift money and bonuses into your down payment fund. You’ll thank yourself later.
8. Shop around. When was the last time that you shopped around for car insurance, cable, internet or your cell phone plan? You could save hundreds by downsizing or renegotiating some of these contracts.
9. Set realistic goals and keep track of your progress. It can be daunting to save tens of thousands of dollars for a down payment. In order to not be overwhelmed or discouraged, set incremental goals to measure your progress. When you meet your goals, reward yourself with a small prize such as a manicure or happy hour with friends.