Tips to Help Save Money for a House Down Payment

Brookings Home Team - Tips to Help Save Money for a House Down Payment

Are you a first-time homebuyer in Brookings, South Dakota? Congratulations! Owning a house is not only fulfilling but also a great investment. That being said, you may have a lot of questions about the homebuying process. Namely, how do I save for a house down payment and how much is enough?

How much is a typical house down payment?

Perhaps you've heard the common homebuying myth, "Your down payment needs to be at least 20 percent." While this amount is generally thought of as the standard, if you are unable to put down 20 percent don't worry! There are options such as FHA loans or VA loans that may only require around 3.5 percent, depending on your eligibility.

Save money for a down payment using these tips.

Depending on your current financial situation, saving for the down payment on a house can be a big deal. This process takes discipline, sacrifice, insight, and patience, but don’t be intimidated! Fortunately, you don't have to embark on this homebuying journey on your own. The real estate professionals at Brookings Home Team are here today with tips to help save money for a house down payment.

Meet with a mortgage lender.

First and foremost, find out how much you qualify for by meeting with a mortgage lender. This amount will set your down payment goal. As we previously discussed, 20 percent is ideal and will result in a better interest rate and help you avoid mortgage insurance, but your number will vary. How long will it take to save your down payment? This will depend on your estimated down payment amount and timeframe for buying.

Create a budget and begin limiting your expenses.

If you’re the creative type, sky’s the limit for this tip. While cutting some expenses like dining out and nightlife may seem like obvious solutions, you can also save a significant amount of money by revising things like cable TV, clothing, unnecessary subscription services, name brand food items, and gym memberships. Living on a budget is a great way to prepare yourself for owning a home, as you will always need money for home improvements and unexpected repairs.

Try to avoid unneccessary spending for a while.

In the same vein as the previous tip, this next piece of advice deals with unnecessary spending. Did you take multiple vacations last year? Maybe you bought a new outfit when your closet is already filled with clothes? Or how about buying a new driver when the one in your golf bag is perfectly fine?

Some (or maybe all) of these questions may not apply to you, but they probably remind you of similar spending habits you could adjust. While these things serve a purpose in our everyday lives, it won’t hurt to take a break from treats as you work toward this milestone of homeownership.

Deposit any windfalls or bonuses.

Instead of spending your windfalls on something frivolous put them in the bank. Although these opportunities are less frequent, saving your work bonuses and commission checks, tax refunds, and financial gifts (of any kind) will put you on the fast track to a home down payment. You can also create your own windfall by decluttering your current living space. Who knows? You may find no-longer-used items that could be sold online for a profit.

Open a savings account (if you haven't already).

A savings account or certificate of deposit may sound boring but they’re the safest ways to save money. Your home down payment is not an investment and shouldn’t be treated as such. While it’s tempting to invest this money in stocks or other investment opportunities, these are high-risk options and you could actually end up losing money. Set up a direct deposit to your savings account and make a commitment not to spend these funds. This automated approach puts the money out of sight, out of mind, and requires very little effort.

Temporarily suspend your retirement contributions.

Generally, you want to save about 15 percent of your income each month for retirement. Now imagine that amount being put toward your house’s down payment. This may seem counterintuitive but again, your future home is an investment and its value will increase over time so it’s not like the money is being squandered. Plus, this is only temporary! You can also talk to your employer about their 401(k) or profit-sharing, as some companies will allow you to borrow against your savings to purchase a house without having to pay any withdrawal penalties.

Reallocate funds and/or sell other investments.

While this tip may not be applicable to all readers, to those with the option to do so, reallocation of certain assets can be very helpful. If you have stocks or other investments, using their worth as part of your down payment in the short-term will create equity in the long-term as your home increases in value.

Research down payment assistance programs.

While there may be local initiatives in your area, national organizations such as the Federal Housing Administration, U.S. Department of Agriculture Rural Housing Service, and U.S. Department of Veterans Affairs may have down payment assistance programs available for qualified homebuyers, too.

Consider getting a part-time job.

The thought of another job may sound exhausting; however, even if you work just 10 to 15 hours per week at your second gig, that could mean a few hundred dollars added to your down payment each month. And remember, it’s only temporary! Try to incorporate your interests into your side hustle, whether that's exercise or sports or animals or computers. You get the idea. If you do something you enjoy it will feel less like work as you get closer and closer to buying a new home.

Come up with a plan that's flexible.

As we mentioned, saving money for a home down payment takes sacrifice and self-discipline. But your savings plan should also be flexible. Medical bills, car repairs, and other unexpected issues will inevitably come up. Start an emergency fund prior to saving for a home down payment. That way, you can weather any financial storm without having to dip into your down payment savings.

Let us answer any home down payment questions you might have.

If you still have questions about your house down payment, the real estate experts at Brookings Home Team would love to help! Feel free to give us a call at (605) 691-3023 or start the conversation online with our website's contact form.