7 Tips on Saving for a Down Payment in Five Years
- Author: Mary Singleton
- Posted: 2024-09-24
When planning to buy a home, one of the main challenges you might face is saving enough money for the down payment. As hard as it may seem, it is advisable to save 20% of the home's buying price because of its several benefits. You will pay less loan interest on the mortgage, lower monthly mortgage payments, and eliminate the need for PMI. While several factors will determine the length of time you take to save for a down payment, there are steps to help you achieve your goal sooner than you may have imagined. Here are five of them:
1. Determine the Kind of House You Want
Before you start saving for a down payment, you should first know the kind of house you want and how much it will cost. Create a list of the things you need the house to have. You may include a conducive neighborhood near good schools or your workplace, the number of bedrooms, and a yard, among others. Then, check online for the prices of similar houses in the neighborhood you prefer.
From what you find, you might have to adjust your expectations. Since the housing market can change before you raise enough down payment, saving more than the exact amount needed for the same is always good. It would be frustrating to work hard and save but discover that the savings are not enough to buy your dream home.
2. Figure Out How Much You Can Afford to Own a Home
After finding out the condition of the housing market in your locality and wanting to start saving, figure out the kind of house you can afford. You can do that by calculating the monthly mortgage you can comfortably pay.
You may use an online mortgage calculator or speak to a financial expert to help you calculate the figure. After establishing the down payment you need for your future home, you should plan how you'll raise it, plus other costs such as moving expenses, closing costs, and purchasing furniture.
3. Set a Goal on How to Save for the Down Payment
Having the idea of the house you can afford and the down payment you need to raise, the next thing should be setting a down payment savings goal. Divide the amount you need by the months you plan to take to increase the figure to know how much you will save each month.
4. Create a Saving Budget
Write down all your monthly income and expenditure. You can keep using a budgeting tool to keep track of your finances. That will help you make better choices and spend less. A budget will enable you to determine the expenses you can forfeit and save the amount for the down payment.
5. Be Keen on Making the Down Payment Savings Like the Normal Monthly Bills
Although creating a savings budget and tracking your expenditure can help you achieve your saving goal, you need the discipline to set aside the money you need. That's why experts recommend that you should treat the down payment savings like a normal monthly bill. Open a separate account for saving the down payment amount and set an automatic monthly transfer to avoid missing the monthly savings. You will also avoid the temptation to spend money instead of saving it.
6. Reduce Your Expenses
You will need to reduce your expenditure to have more cash to save for the down payment. You can move to a cheaper house, find a housemate and pause paying for some subscriptions that you can do without, such as gym membership. You can then put the amount saved in the down payment saving account.
7. Find Ways to Get Extra Income
You can also find a side hustle to earn more to achieve your down payment saving goal. You can start selling items online, become a freelancer, work extra shifts at your workplace, become a tutor, or do any other job that can help you earn a substantial amount. You can also get a part-time job, request a promotion in your current job, or look for a better-paying position.
If you plan to buy a home, you must know how to raise enough money for a down payment. Although the process may be challenging, the above tips will guide you on what you can do to save the amount you need within five years or less. You will need more ways to raise extra income and reduce expenses to achieve your goal.
