So how can you save for a down payment for a new home? Saving up for a down payment on a house can be one of the most challenging parts of home buying. It takes many people years to save enough cash to afford the home they want. If you’re able to put down at least 20% down payment on your new home, you’ll save yourself a lot of money because you won’t have to pay mortgage insurance. In addition to that, having 20% equity in your home can be psychologically powerful.
Here are 10 ways to help you get on the right track to help you save up a big lump of dough.
1. Use an Online Savings Account to Save For a Down Payment
A standard bank like Bank of America or Citibank is going to have lots of overhead costs which in turn they push back on you in the form of fees and lower interest rates on your finances. Going with an online bank will work in your benefit. They tend to have much lower fees and higher interest rates. Currently interest rates are incredibly low, but going with an online bank will still get you about 4 times higher rates. If you have a good chunk of change sitting in there, it can add up. And it’s a lot safer then having it in stocks or bonds when you’re saving for the short term. I use an Orange Savings Account from ING, but there are some other good ones out there as well such as American Express Savings and Ever Bank. The interests rates for these banks will beat the socks off most CDs and money market accounts.
2. Budget and Keep Track of Your Finances
It’s easy to lose track of what you’re spending money on and how much you’re actually putting away each month. It’s incredibly important, however, to track where your money goes if you really want to see your gains. I use Mint.com because it does all the work for me. It’s a free online service that will track all of your spending, earning, and categorize everything as well. It even lets you keep track of your savings goals…
3. Set a Goal to Save for a Down Payment
If you’re just saving without a goal in mind, it’s tough to stay motivated. Come up with a date and an amount and hold yourself to it. If you’re able to squeeze out $1200 a month towards your savings goal, consider automatically transferring it from your checking to your savings account each month. If you’re off track by $300 after 3 months, see what you can do to make that up in the next month.
4. Cook More Often
Not only is cooking typically better for your health, but it is better for your wallet as well. Try to avoid the gourmet grocery stores as well if possible. Myself and my wife are able to live off of $65 / week on groceries, and we usually don’t eat out more then once or twice a week. We normally stick with discount grocery stores such as Aldi and Walmart for our weekly essentials. Of course, it helps if you can cook (or in my case have a spouse who can cook amazing meals), but even simple dishes like chicken and vegetables can go a long way. I always feel much better physically and mentally after finishing a home cooked meal. Your hard earned cash can go towards your down payment instead of unneeded calories.
5. Sell Stuff on eBay
To help raise some extra cash when saving for a down payment, use eBay, Craigslist, or just setup a yard sale. Most people have a lot extra items that they don’t use or need anymore. Typically if you sell individually rather then in bulk, you’ll make more money. Here’s an excellent guide to selling things on eBay from Christian PF geared towards beginners. Make sure you don’t sell anything you’ll regret in 5 years, but this can really help you fund a good down payment if you work at it to get the best deals you can.
6. Red Box or Netflix
Going to the movies these days usually costs $10 a person at least. On the other hand services like Netflix which let you stream movies from home, cost less then $10 a month. If you want to be even more frugal, check out a Red Box movie for $1 per rental. Just don’t forget to return it on time!
7. Live Below Your Means to Save for Down Payment
If you get a raise or a bonus at work, don’t go out and spend it right away. Think of it in terms of reaching your down payment goal even faster. Thinking about buying that fancy new sports car? Maybe your 95 Honda Civic will last a couple more years. I think you get the jist here, just be careful on the type of lifestyle you are living in accordance with your income. If you’re making 5k a month, and spending 4.8k a month, that doesn’t leave you much of a way to save for your goals. Someone make 3k and spending 1.5k is going hit their down payment much faster.
Many things can be negotiating simply by asking for a better rate. Did you overdraft by accident from your checking account last month? Late fee? Call them, explain to them that you’re a good paying customer that made a mistake, and often times they’ll waive the fee for you. Simple as that. On top of that, many monthly bills you pay can be negotiated. There is a even a website that will do this for you. Check out billcutterz and see how much that can negotiate your monthly payments for you. If they can’t save you any money, you’ll pay nothing. If you end up saving even an extra $40 a month, that’s still going to help you reach your goal faster.
9. Use Groupons
10. Pay Off Debt
While this won’t necessarily help a lot in the short run, it will certainly pay off later. If you have credit cards or other loans with with high interest rates, pay these off before saving for a down payment. If you don’t take care of this kind of stuff, it will surely cost you dearly in the end. Deferring those loans might seem like a good idea now, but when you can’t afford your mortgage later, you’ll risk losing your house. Ouch!
Hope this helps! I’d love to hear some of your methods on how to save for a down payment that have worked for you. I’m always interested to learn other people’s strategies for saving up for a down payment. Please leave some feedback, suggestions, or comments below.