For many first-time buyers, the down payment and closing costs are the greatest challenge to buying a home. To put down 20%, you need to come up with more than $38,000 for a median-priced home without considering closing costs. That's a large number, especially when you consider rising rent, increasing health care expenses, and stagnant wage increases. A new Zillow report even found that the standard down payment is now more than two-thirds of the average household income.
The good news is there are plenty of steps you can take to save up the money you need for your down payment. Here are four tips for saving that you may not be using yet to get your dream home.
#1. Cut back on food spending
If you're like most Americans, you spend over $6,600 on food every year. The best place to start is avoiding eating out as much as possible. Ditch the prepackaged foods that save time and focus on staples at the grocery store. Prepare meal plans ahead of time and make vegetarian meals once or twice a week to reduce high-cost meat. Incorporate leftovers into your menu plan to avoid waste. If you drink soda, cut it from your diet to not only improve your health but save hundreds every year. Always walk into the grocery store with a list and stick to it. It can help to go grocery shopping just once a week. The less shopping you do, the less likely you are to give in to impulse buys.
#2. Save on your bills
Reducing your expenses is the key to boosting your savings. The best place to start is your biggest monthly expenses. This likely includes your car insurance premiums, cell phone service, internet service, and TV service. Review your plans to see where you can reduce expenses, such as reducing your TV or cell package. Contact your service providers and try to negotiate better rates. To ensure you're getting the cheapest insurance that still offers the coverage you need, ask about any discounts you may qualify for and compare quotes among three or more insurance companies.
#3. Reduce your energy use
Your energy costs can quickly add up if you aren't careful. Fortunately, a few easy changes can help you control your home and car energy costs. Start by installing a programmable thermostat in your home which can deliver significant energy savings. Because heating hot water accounts for about 12% of your utility bill, reduce the thermostat on your hot water heater to 120-130 degrees F, install low-flow fixtures, and invest in insulation for the hot and cold water pipes and water heater.
If you want to save on gas costs, it's time to start better driving habits. Driving at 70 mph rather than 55 mphreduces your fuel efficiency by up to 17% while under inflated tires can drop fuel efficiency by 1%. Buy gas early or late in the day for lower gas prices and sign up for a loyalty program that gives you a discount at the pump.
#4. Look for down payment assistance programs
Don't assume you need to save up the full down payment before you buy a home. As a first-time buyer, you likely qualify for a federal or local down payment assistance program. There are almost 3,000 down payment assistance programs in the United States that offer an average of $11,500 in help per buyer. Unfortunately, many first-time buyers aren't even aware these programs exist. You can visit the Housing Finance Agency to learn more about programs in your area.
