4 Tips to Help You Save for a Down Payment on a Home
Four tips to help you get started and take one step closer toward homeownership.
Obtaining home financing requires you to have all your financial ducks in a row, and one of the most effective ways you can prove that you are financially solvent is to offer up a sizable down payment on a property. Larger down payments indicate that you manage personal finances well, plan ahead, and have the means to meet your mortgage obligations. In many cases, lenders may also offer more favorable terms if you are able to put more money down on your purchase.
Therefore, it’s in your best interest to begin saving for a down payment early on before you submit your home loan application.
1. Start Cutting Back
You may not realize how much you’re spending in certain areas that would otherwise give you more wiggle room to save. Examine your budget and begin by looking at discretionary purchases, such as dinners and movie nights out, entertainment spending, luxury purchases (nails, hair, coffee, etc.) and other unnecessary items. By scaling back on unnecessary expenditures, you can devote more to a high-interest savings account. You might also consider scaling back living costs by switching to a cheaper cellphone plan and cable package, and using coupons to reduce food costs.
2. Make Extra Cash on the Side
Working more overtime, turning a hobby into a money-making opportunity or getting a part-time job can help you bolster your savings quickly. You don’t have to work two full-time jobs to help bring in more income, but you may be surprised how quickly a few hundred extra dollars will add up over the months by getting a part-time gig.
3. Examine Your Debt Payments
Many people try to eliminate high-interest debt before applying for a mortgage, and this is a smart idea. However, if you’re paying balances across five or six credit lines – each with different interest rates – it can make it more challenging to save. You might consider looking into transferring your balances onto a single card with one interest rate to free up more income. If you have various student loan payments, consolidating them into a single payment may also be more affordable and give you more money to work with.
4. Use the Right Savings Account
If you are trying to maximize your savings potential for a down payment, opening a separate high-interest account to grow the money you contribute may be a smart idea. Just make sure you understand any minimum balance rules that may apply to the account before opening it.
For more information on purchasing a home, visit the Homeowner’s Café. There, you can find information on making your first home purchase, making investment purchases, or understanding short sales and foreclosure.