As a prospective homebuyer, you need to save money for a down payment on your new home. The standard down payment for a conventional loan is 20 percent; however, there are other loans that might be available to you, such as the FHA loan, in which you might only be required to put down 3.5 to 5 percent of the purchase price. While that might sound more appealing on the surface, without the standard 20 percent down, you’ll be required to pay mortgage insurance (PMI for conventional loans, MIP for FHA loans). Since this is the case, and since FHA loans are not an option for everyone, we’re going to assume you’re aiming to come up with 20 percent.
Here we will look at some of the top ways to secure your down payment.
First and foremost, adopt the mindset that above anything else, you need to save your money. It sounds over simplified, but there are ways in which to save monthly and put that money to use.
Transfer money to a special account.
After determining your monthly expenses, earmark a fixed amount of money each pay period to a special savings account and do not touch it.
Decrease your expenses.
Below are some examples of how to do that:
- Cable TV: Anyone that is still paying for cable television knows how expensive this can be. Consider “cutting the cord” and look into a streaming service instead. If you’re not quite ready for this change, call you cable provider and try to decrease your monthly package. You might find you’re paying for a package you don’t really need or use.
- Electricity: While you certainly aren’t going to disconnect your electric as you might your cable, there are ways to save on your monthly usage, lowering your monthly bill. If you currently own a house, you can start by getting an energy audit. A representative assesses your home and suggests ways to lower your usage. If you’re currently renting, you can ask your landlord to request an audit. Be sure you are doing simple things such as turning off lights and unplugging power cords when not in use. You’d be surprised how much electricity is used by electronics (computers, printers) when not in use but still plugged in.
- Oil: If heating your home/rental with oil, consistently shop around for lower prices. Some oil companies will provide discounts if you sign up for automatic deliveries. Keep in mind that even with that discount, you might be paying more than you need to.
- Thermostats: If possible, invest in an automatic thermostat that you can program. Keep your temperature regulated in the summer and winter months, preventing the heat/central air from kicking on when you’re not home.
- Eat at home/Pack your lunches: Instead of eating out, plan and/or prepare your meals ahead of time.
Sell items you are not using.
The perfect time to consider this is when you are planning to move. This is the time to go through your things and declutter so as not to have to pack items no longer wanted or needed. You might find gently used items, or even new items, that are of no use to you, but other people might be willing to buy. You see people selling purses, jewelry, clothing and furniture all the time online making extra cash, and every little bit helps!
Get a Second Job.
Depending on your situation, you might want to look into acquiring a second job. Whether it be out of the house or making extra money off a hobby or skill you might have, the extra income can be put towards your down payment.
While you might look forward to your yearly getaways, put a temporary hold on vacationing while trying to save.
Pay off your higher interest credit cards.
Yes, this might seem like a daunting task, however you could be throwing away hundreds on your high interest credit cards by paying only the minimum amount due each month. Paying these off will not only save you money, but you will also change the utilization score on your credit report before applying for a mortgage.
Invest your savings in a money market account or a CD.
You will find your return is higher than that of a standard savings account.
Take a loan from you company sponsored 401K.
Though taking a loan out might sound counter-productive when trying to save, a loan from your 401K is usually a penalty free way of borrowing from your retirement, and you are paying it back to yourself through payroll deductions. Unlike other types of loans, this will not negatively affect your credit score.
While none of these suggestions alone will save you the thousands you will likely need for a down payment, with diligence the money you can save by combining the above suggestions will certainly add up to a substantial savings, bringing you one step closer to owning your dream house.