Advice for First-time Home Buyers Looking to Save Money for Down Payment
- Author: Monica Jackson
- Posted: 2024-08-02
When looking for a house to buy, the first thing to do is know how to raise enough down payment. Depending on the home you want, you should understand how best to raise the required down payment money within the required time frame. The amount of down payment you save will affect your loan from financial institutions and the monthly installments you'll make.
While saving for a down payment, most people make lifestyle changes for a couple of years to raise the required cash within the planned period. While it can be challenging for a first-time home buyer to save for a down payment, you may need to find creative ways and skills to enable you to achieve your dreams. While at it, here are the top six ways that you can use to succeed at owning your dream home within the planned time.
1. Create a Budget
The first thing you should do when saving for a down payment is to understand how you spend your current income. Check how you apportion your finances on various expenditures such as clothing, food, travel, and entertainment, and consider those you can reduce to save more. You can only do that by creating a budget and sticking to it throughout the saving period. Choose a budgeting strategy that suits your needs best and stick to it.
2. Settle on an Amount You Can Raise for the Home Purchase
According to housing experts, 30% of your income should go to housing needs. However, that should not be the cost of your mortgage. The 30% should cover all housing expenses, including taxes, insurance, and utilities. From your earnings, gauge the amount you can afford to save each month for the down payment and start depending on your plan.
3. Automate Your Savings
Since you can never lack ways to spend your money, it can be challenging to save part of your income instead of spending it. Therefore, it would be wise to automate your savings to avoid feeling tempted to spend them in other ways.
When you open a down payment account, consider requesting the bank to create an auto-deposit where they will automatically deduct and save a certain amount from your income each month. That will enable you to save since you'll not have the option to spend the money.
Also, consider opening an online savings account and auto-deposit your savings. Savings accounts are the best to save your down payment because they have a limited number of times you can withdraw money from them each month. That will help you avoid spending unnecessarily and save more to accomplish your dreams.
4. Spend Less and Save More
To achieve your down payment saving goal, you should check your expenses, find out which you can reduce, and use the money to increase your savings. For example, you can reduce expenditures such as phone bills, buying meals from the restaurant, gym membership, and going on holiday. You can stop going to the gym and exercise through jogging, cycling, and other free alternatives. Use the money saved from the reductions to increase your savings.
5. Find Creative Ways to Get Extra Income
An extra income can go a long way in enabling you to achieve your dream of financial progress. You may request your employer to increase your salary or give you a promotion. However, if that is not forthcoming, consider other ways to earn some extra cash. Make sure you research the best side hustle ideas before settling on one because some may not provide you with enough returns for the project. The best side job to settle on should be one with excellent returns and low overheads, such as tutoring, consulting, and freelancing.
6. Instead of Buying New Items, Consider Used and Save the Difference
When you need to buy items during the saving period, consider purchasing a second hand instead of new ones. That will help you save the difference for the down payment. Also, choose the best item buying practices to avoid spending the much-needed money on faulty gadgets that may need repairs and replacements. While buying second-hand items will satisfy your urge to have new things, it will also enable you to save the money you need for the down payment.
When saving for a down payment, every dollar counts. You should consider the above tips to make the saving journey less challenging. As you do that, ensure your credit profile is ready to get approval for the mortgage.
