Buying a House? 9 Saving Tips for a Down Payment

Buying a home is one of the biggest financial decisions you’ll have to make in your life. It’s an exciting milestone, but saving up enough money for a down payment can seem like a daunting task (especially if you’re still paying off loans and other debts). It doesn’t have to be that way, though. Whether becoming a homeowner is still on your long-term vision board or you’re already planning the color of your walls, the most powerful part of saving is identifying your goals, both big and small.

Let’s take a look at some simple, actionable saving tips for a down payment that could allow you to save enough to afford that dream home sooner than expected!

9 Simple Saving Tips for a Down Payment on Your Dream Home

1. Know How Much You’ll Need

First, you need to determine how much you’re needing to save for the down payment on your vision board home. Typically, housing expenses should not exceed 28% of your stable monthly income. These expenses will include mortgage payments, real estate taxes, insurance and HOA dues (if applicable).

The purpose of a down payment is because home lenders generally aren’t going to finance 100% of the purchase price. For conventional loans, most lenders are looking for a 20% (or higher) down payment. The bigger the down payment you’re able to make, the less risky the loan is for the lender. But you have options.

For example, Fannie Mae and Freddie Mac, government-sponsored enterprises, are both backing 97% loan-to-value loans allowing lenders to offer 3% down payment mortgages to qualified buyers. And the Federal Housing Administration (FHA) offers 3.5% down payment mortgages through participating lenders.

See our most recent blog, “A Look At Different Types Of Mortgages And How to Determine Which is Best for Me” for even more loan options including Veterans Administration loans. And check out this handy mortgage calculator from Zillow to estimate the cost of a down payment:

2. Make a Vision Board

Visualize your goal. Pin up big, beautiful photos of your dream house on a vision board, post a picture near your office work-space, and fold up one in your wallet. Choose pictures that are inspiring and motivating and that focus on how you want to feel when you’re in your new home.
Huffington Post offers handy step-by-step instructions on how to create a vision board that really works.

3. Determine Timing

Once you have your eyes set on how much home you’re looking at, you can estimate a time-frame based on your financial circumstances. Keep in mind that shorter timelines will require higher savings goals and some high-paying renters may face a long road of savings before becoming a home owner, but it’s more attainable than you think.

4. Start Saving Automatically

Don’t over-stress yourself with financial to-dos, simply automate it. When savings becomes more convenient, you’re more likely to stick to it. Choose a fixed amount or percentage of your paycheck to be automatically deposited into a separate savings account designated for just your down payment (this way, you won’t even see the money to begin with).

5. Set Aside the Extras

Set aside raises, bonuses and tax refunds rather than spending them. Even save your change- some banks even allow debit card users to round-up purchases to the nearest dollar and put that change into a linked savings account.

For example, if you purchase a coffee for $2.50 with a Bank of America debit card, you are actually charged $3.00, but the change is deposited in your savings account. So, $2.50 for the coffee and $0.50 for savings.

6. Hustle

Sometimes you just need to start a side hustle for additional income. No matter what your skill set is, think about how you can tap it to provide extra services. Think about things like tutoring, coaching, freelancing, selling stock photos or getting down and dirty with maintenance jobs that will allow you to bring in quick money you could easily set aside.

Consider finding a part-time or seasonal job that could fit around your full-time work schedule as well.

7. Track Spending Habits

Experts say that changing your spending habits is 80% behavior and 20% knowledge. Take a look at where you’re currently spending your money. Organize your expenses on a spreadsheet. The less complicated your budget sheet is the more likely you are to stick to your plan and thankfully there are a number of handy tools out there to help you stick to it.

Take a look at sites like BillGuard, Smartsheet, and Toshl to get started.

8. Filter Expenses

Now it’s time for the fun part. Start filtering out all unnecessary spending (like premium cable packages and wasted energy), excessive habits (like shopping or tobacco) and indulgences (like that venti triple-shot mocha Frappuccino). Making small changes in the way we live day to day can add up to big savings.

USA Today reveals some surprising figures in their post, 20 ways Americans are blowing their money. Take wasted food, for example: “According to the National Resources Defense Council, Americans waste $165 billion annually by tossing away unwanted snacks and meals. The math works out to approximately $529 per person each year.”

See if you can pick one item on their list to cut back on and take control of your financial goals today.

9. Stay Motivated

There may be a time when the “honeymoon” phase of saving starts to wear off and you realize you have a lot of work ahead of you. It’s at this moment when you experience temptation to splurge that visual reminders of your motivation become important. Allow yourself some breathing room but watch your numbers and stay focused on the big picture. A new home.

While the initial thought of saving for a down payment may seem overwhelming, hopefully now you realize how easy and rewarding savings can really be. Besides, once you set your eyes on that gorgeous home pinned up on your vision board, there’s no stopping you now!