When considering buying a home, a down payment plays a major role in your future housing expenses. According to the Consumer Financial Protection Bureau, the amount you save can greatly influence your interest rate, monthly housing payment, and need for mortgage insurance.
Here are six helpful tips for saving for a down payment on your future home.
• Develop a budget and timeline. Start by determining how much you will need for a down payment. Create a budget and calculate how much you can realistically save each month. This will help gauge when you will be ready to transition from renter to homeowner.
• Establish a separate savings account. Set up a separate savings account exclusively for your down payment, and it is best to use direct deposit to make your deposits to this account automatically with each payroll cycle. By keeping this money separate from other bank accounts, you will be less likely to tap into it when you are tight on cash.
• Shop around to reduce major monthly expenses. It is a good idea to check rates for items such as your car insurance, renter’s insurance, internet service, and mobile phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts. Trim other regular expenses where you can such as cutting your own lawn or shopping for a hair salon that can give you the look you want for half the price.
• Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut including dining out, vacations, sports or theater tickets, and more. Instead, put that money into your down payment savings account.
• Look into home-buying programs. Many states and other government entities operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.
• Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save a total of $30,000, consider treating yourself to a nice meal with every $5,000 saved. This will help you stay motivated throughout the process.
Lenders usually require between 5 and 20 percent of a home’s purchase value as a down payment, but the more money you can put down, the better off you will be. By responsibly managing your spending and allocating extra cash to a savings account, you will be on the right track towards saving for your home purchase. When you are ready, seek out the expertise of your local bank to help you with the pre-approval process and mortgage loan application. You will be one step closer to living the American dream of home ownership.
The American Bankers Association promotes American Housing Month annually in June and provides a variety of helpful resources for new and experienced homeowners. Visit www.aba.com/consumers for additional information.