3 Strategies to Save for a Down Payment for First-Time Homebuyers
Buying a home is a big decision, and one that takes mental and financial preparation. Honestly, the truth is there is no easy way to prepare. You just need to put your mind to it and find ways to cut back your spending and increase your savings. These 3 tips may just help you save for a down payment, and accomplish your goal of obtaining your first home.
1. Create a budget and cut costs
The first step to saving is to sit down and examine how much money you have and how much money you’re spending on debts and other purchases. Once you create a spreadsheet you’ll end up with a visual representation of this exchange and you’ll have a better understanding of how much money you have left over.
If you don’t have a ton left over, or even if you do, the next vital step to creating the budget is to look at the areas where you can decrease your spending habits. Small things like coffee once a week won’t make as huge of an impact as cutting out cable every month or switching to a cheaper phone provider. Although, if you can cut out some small things like coffee, go ahead because anything helps.
2. Start saving now, not later
Now that your budget is created, you should have a better understanding of how to manage your money. Next you need to start saving. The longer you put it off, the longer you have to wait to buy a home.
It’s recommended you place 20% of the cost of the home down because it allows you to eliminate the cost of private mortgage insurance (PMI), and move into your new home with some equity. You can put down less, but that means you may have to pay PMI.
You’ll need to decide what the right decision is for you, but either scenario takes time and discipline to save.
3. Open a separate savings account
Sometimes the easiest way to save for something you really want is to dedicate an account to that cause. The account you open for the purpose of saving for a home needs to be one you won’t touch at all until you’re ready to actually make your down payment.
Depending on what your goals are and the timeline you have for purchasing a home, you might be able to put your money into a low interest bond or certificate of deposit (CD) to earn even more interest on your money while you’re saving. You can put your money into a higher risk investment, but remember just that…it’s higher risk. Although you stand to gain more, you could also lose a lot and potentially right when you need it for your down payment.
Keep your head up
To accomplish any goal you need to stay positive. Keep looking for opportunities to make more money or save more money. You may want to check to see if your city or state offers perks to first-time homebuyers, extra perks always help. Regardless of whether your city or state does or doesn’t offer advantages, saving money takes time and dedication on your part. If you remember saving for a down payment is temporary until you get the castle you want, you’ll have the savings you need in no time.
What other ways can you save for a down payment?