Practical Tips Homebuyers May Consider When Saving for a Down Payment

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Becoming a homeowner is probably one of the biggest life goals everyone wants to achieve. Not only does owning a home give you a sense of freedom and autonomy, but it can also help increase your wealth. However, raising funds to achieve this dream can feel as challenging as climbing Mount Everest. This article will give you the tools to help make saving for a down payment a reality.

Set your goal and timeline

Down payments can be tricky to finance. It is a big chunk of money that you need to have ready before moving into your new home. Finding the cash to fund this can be a difficult task, not to mention also thinking about closing costs and moving expenses. Traditionally, 20% of the purchase price is an excellent place to start thinking about buying a home. If you want to purchase a $200,000 home, you’ll want to save around $40,000 just for the down payment. If you want a more expensive home, say $1 million, the down payment at 20% would be $200,000. Make sure to remember closing costs, which can be around 4% of the purchase price. In the end, you need to have thousands of dollars on-hand to get the keys to your dream home. It is scary, but by establishing your goal number and the timeline you want to achieve it, you can actually pull it off. If you are looking to get a house in a year, breaking down your number into monthly goals will make it feel like you are getting closer and closer to your dream. If you need to save $40,000 in one year, that means putting away $3,333 a month. Now the next question is, how do you do that?

Set up a high-interest savings account dedicated to this goal

Since you’re saving all this money, you want it to start working for you. Setting up a high-yield savings account means getting higher interests back as compared to what a traditional savings account will pay. You could also put the money in a brokerage account, which enables you to invest in stocks or bonds, but you might not get returns on your investment as quickly or as reliably as you would like. By establishing a dedicated high-yield savings account and committing to not touching it, you will see your funds grow toward your specific savings goal.  

Look at your budget and trim the fat

If you don’t already have a budget, start making one that reflects your monthly expenses. List fixed costs like rent, utilities, taxes, and any debts you pay regularly. Then list all your variable costs such as food, entertainment, clothing, vacations, and things you only buy occasionally. Compare how much you make each month against the total amount you spend each month. If you see you have some money to save, start making monthly deposits into that new high-yield savings account. If you see a deficit or want to keep more than what you currently can, look into ways to cut back on your variable expenses. Maybe this means skipping the vacation you wanted or not buying a new pair of winter boots. Make sure to look at the subscriptions you pay for and reevaluate if they are necessary.

Put money towards the down payment, not your retirement fund

Now that you have a goal to save up for a down payment, reconsider how much you are contributing  to your retirement account. Is it worth it to put thousands of dollars into a Roth IRA or a 401K when you could be using those funds to help boost your down payment? Depending on your financial needs and how long your working timeline is, it might be worth reconsidering the amounts that you are contributing to your retirement account. Consult with an investment advisor or your CPA to assist you in making that decision.

Get a second job where all that money goes directly to that fund

If you have a job, but it isn’t enough to help you save for your down payment, consider getting a second job where all those funds go directly towards your savings goal. Whether you are a teacher and can get some additional hours of private tutoring or a waiter and can pick up some extra shifts, there may be a second job out there that could utilize your skills. Even if it is only for a couple of extra hours per week, the additional money you make can be put away and significantly help achieve your savings goal.

Determining your down payment savings goals is a huge decision, but hopefully, now that you know of ways you can save for a home, you’ll be able to turn your dream into a reality. If you want to talk further about purchasing a home, make sure to contact one of our RPM Mortgage Loan Advisors for more information.