Buying a home is a big financial decision and making your new home a reality means you'll need some money for a down payment. Homeownership is a great goal to have, and once you've figured out how much money you need to save, you can get down to business. As a general guideline, you'll need between 5% and 20% of the purchase price of a home. The actual number will depend on your financial situation, but it's always a good idea to get started as soon as possible. If you happen to end up with extra money, it can be applied to your moving expenses. Here are some suggestions to get started saving.
- Make it automatic. Designate a separate account strictly for your down payment and have your money direct deposited or schedule regular transfers from your main account. For many people, it's much easier to save the money if you never see it in your checking account in the first place.
- Pay down or pay off your current debt especially if it's high-interest debt. Credit cards and car loans are two common budget busters that can eat up a sizable chunk of your monthly income. You may be able to refinance a car loan to a lower interest rate, and apply the extra money to the principal to pay it off sooner. Most credit cards assess interest daily, so paying more than the minimum as early in the billing cycle as possible will mean you're being charged less interest, allowing you to pay off that card sooner. After you get rid of the debt, you can put that money toward saving for your down payment.
- Cut out unnecessary spending. This includes monthly expenses and discretionary spending too. Eat out less, skip the daily latte, cut your grocery bill, give up the monthly subscription box, or get cheaper internet. You also may want to consider living somewhere less expensive or getting a roommate while you're trying to save for a home.
- Earn extra income and save it. You could get overtime at your current job, get a second job, or get a side hustle to earn extra income. You could also sell some of your stuff or something big you can do without, like a second car. Then put that money in the savings account for your down payment.
- When you do have to spend money take advantage of deals, coupons, and freebies. If you're going out with friends, go for the mid-week dinner specials. Buy one, get one free deal at your favorite lunch place, free concerts, community events, and game nights in can all help you reach your goal.
Saving up for the down payment on your new home can seem like an enormous task. But the truth is several small steps, and a little effort can make a big difference. You'll be in your new home before you know it.