Thursday, 28 May 2020

How to Save For a Down Payment on a House

Written by Posted On Thursday, 02 April 2020 12:15
Ways to Save For a Down Payment Ways to Save For a Down Payment

Tips For Saving For a Down Payment

Are you itching to buy a home but need more down payment funds? Finding the money for a house down payment can be difficult. With rising home prices all across the country, it is more challenging than ever for first-time buyers to feel financially secure. You may have rent to pay and other expenses to cover before you can think about saving.

Buying a house brings an end to the feeling of wasting money by paying rent, but with a large amount of money required for a down payment, it can be tough. Is the situation hopeless? Of course not! The key is starting your down payment savings plan early.

Additionally, what many homebuyers don't realize is that there are specific mortgage programs today that allow for low and even no down payment options. The days of needing a twenty percent down payment to buy a house have long since past.

Keeping this in mind, let's take a look into some ways that you can get the money for a down payment.

How Much Do You Need for a Down Payment?

While you don't need twenty percent down anymore to buy a house, ff you can save twenty percent of the purchase price, you will avoid having to pay mortgage insurance each month. The insurance is to protect the lender should you fail to keep up your mortgage payments. It can be a significant extra cost added to your monthly outgoings and something you should try to avoid.

You also need to know the approximate cost of the home you are looking to purchase. If you know the prices of the homes in the area you want to live, this should give you some idea of the amount you need to save. You do need to bear in mind that house prices generally appreciate and factor this into your calculations.

Your income will also set the limit for what mortgage you can manage. Don't set your sights beyond what you can realistically afford. Many borrowers stretch beyond their means because the lender allowed them to.

Get comfortable with the fact you should stick with a sound housing budget.

Dealing With Your Debts

It is going to be more challenging to save up to purchase a house if you have loan commitments to cover each month. Work on paying off your debts before you begin to save for a home down payment.

Paying down debt becomes even more important if you are paying substantial interest on your loans. High-interest obligations should be dealt with first, as they can suck you dry. One of the most critical steps in successfully buying a home is getting your financial house in order as far in advance as possible.

If you have student loans paying them down should be at the top of your list of priorities.

If managing your finances has been challenging, you might want to consider a company like Credit Karma that offers trust-worthy financial knowledge to put you on the right track. Maximum Real Estate Exposure explains in-depth on Credit Karma can be an economic godsend.

Part of your financial planning should also include monitoring your credit score. Keeping tabs on your score is vital when you're going to be buying a house, as mistakes are quite common. A mistake can easily translate into less desirable mortgage terms. Be vigilant in making sure this does not happen.

Setting a Goal

If you know how much you need for a home down payment, it will be far easier to save. Start a separate bank account that you pay into each month, just for the down payment. Create an automatic direct deposit each month to build up the amount in this account and make sure you never take from this account to spend on other things. By having the money sent there automatically, you'll avoid the temptation of spending it elsewhere.

Parents who educate their kids early on finances tend to put themselves in a much better place financially than their peers. If this sounds like your parents, you are probably shaking your head in the affirmative and saying, "thanks, mom and dad." I can say this from personal experience, as I learned to be a saver at a very early age and bought my first home at the age of twenty-three.

Making Savings

If you are able to lower your expenses, it will be much easier to save. It is easy to take on extra expenses when you have plenty of money coming in, but if you want to save, you should think very carefully if you can reduce some of these costs.

Vacations are somewhere else that savings can be found. If you can reduce the costs of your vacation or forgo it altogether, this could go a long way to boosting your savings. Doing so will be especially difficult, but in the long run, it will really help achieve your ultimate goal.

I can remember as a college student, there were times where my friends were having fun on the weekends, and I was at home working a job. In the long run, it made a world of difference.

Borrowing From Parents

It is common for first-time buyers to borrow money from a parent or other relative. This can make finding enough money less of a struggle, though you will need to mention this gift amount in the application to the lender.

Getting a gift to put towards the down payment is not uncommon at all. The article at Bankrate does an excellent job explaining what you need to know.

Make Some Extra Income

Perhaps you can get extra hours at work or a second job to help with your savings. There are many possibilities to earn extra money from a side hustle, find something you like doing and see if you can earn some extra cash from doing it. If you love pets, perhaps a dog walking service could make you part-time income, for example.

Selling Items For Cash

If you have some possessions which you can live without, this could be an excellent time to sell them. If they are worth something to someone else, you can easily sell and add to your down payment account. If you have investments, consider converting them into a home instead. Your home will likely increase in value, so this is still an investment, just a more useful one.

If you commit to your savings plan and take the steps necessary, you will be able to find the down payment to buy a home sooner than you think.

Borrowing From a Retirement Plan

If you have a retirement plan, this is another potential source of help. You may be eligible for a penalty-free withdrawal from a 401K, check the details of any programs you pay into. This one would probably be the last resort. Most of the time, you would be better served to keep your retirement accounts intact and working for you.

Get Some Help From a Real Estate Agent

While this may not be popular advice among some agents, asking for their help in the form of rebating, some of the real estate commission is a possibility. Do you have any friends or family that work in the industry? This would be the first place to start. There might even be a friend of a friend that is willing to help out.

There are tons of real estate agents, and some of them are starving for business. Other agents make a significant living and would not be out much in the way of offering some help. The mantra of "it never hurts to ask" is certainly in play. The worst that can happen in the agent will say no.

Down Payment Assistance

Some people could qualify for financial help from local organizations that provide grants. Check with your local housing authority to find out if there are any programs and what you could be eligible for.

If the seller of the home you are interested, is motivated to sell, they might be able to help. You will need to have the arrangement checked over by an attorney if the seller is willing to get a second mortgage to cover some of the purchase price.

Final Thoughts on Coming Up With a Down Payment

Buying a home comes with tremendous financial responsibility. The allure of getting to that point as quickly as possible can be gut-wrenching at times. You need to stay the course. Put yourself in the best possible position to becoming a homeowner by having a game plan to achieve your goals. Be a saver, not a spender.

Finding the money for a down payment will become easier than you think with a solid game plan in place.

About the author: The above article on how to save for a down payment on a home was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-three plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

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Bill Gassett

One of the top RE/MAX agents in New England over the last decade plus. Providing exceptional real estate services to buyers and sellers in the Metrowest Massachusetts area including the following communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

See my real estate website at Maximum Real Estate Exposure - one of the most visited real estate sites in Massachusetts.

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