Most people’s long-term dreams include owning a home saving enough to do so can seem daunting.
People with average incomes face this problem even more. Where do you find the money to save for a house if you don’t earn much?
Thanks to a solid savings plan, anyone can start building up their savings to progress toward their financial goals. Qualified borrowers can now buy a house for 3% down– just $9,000 for a $300,000 home. How to start saving for a home – with the right knowledge.
WHAT IS THE AMOUNT I NEED TO SAVE FOR A HOUSE?
- The first step is to determine how much you need to save to buy a house.
- The answer to this query will lean on several factors, including:
- Home costs in your preferred area
- Decide your ideal home’s size and type
- Check your credit score and debt load
- Expected down payment percentage
- Calculated closing costs
- Assistance programs for first-time homebuyers in your area
THE BEST WAY TO SAVE MONEY IS TO BUY YOUR HOUSE
If you have calculated how much you can save, now is the time to act! Here are ten ways to save up for a down payment.
1. CONSIDER YOUR TIMELINE
When do you plan to buy it? If you plan to buy in six months, your strategy will be different than if you plan to purchase in five years.
There may be a need to cut back on optional expenses if you have a short deadline. You shouldn’t invest the money you’ll be using for the down payment due to the short time frame.
When you save over a longer period, you might have more wiggle room in your budget. You might be able to enjoy some investment profits while you save (see step #8).
2. FIND OUT THE MONTHLY TARGET FOR THE SAVINGS AMOUNT
You can start saving once you know the total amount necessary (down payment + closing costs) and when you plan to buy.
The math is simple:
- Take the total upfront price (down payment amount + estimated closing prices)
- Deduct any savings you already have that you plan to utilize for the down payment
- Divide by the number of months until you plan to purchase (five years = 60 months, for example)
- The result is the amount you need to save per month to get your goal
- To illustrate, let’s look at an example.
- Now you need a $60,000 down payment + $10,000 in calculated closing prices = $70,000 total
- If you presently have $15,000 saved, you still need to save an extra $55,000
- Plan to buy in about five years (60 months)
- $55,000 divided by 60 = $916.67
- You need to save about $916.67 per month to reach your goal in five years
3. ADJUST YOUR BUDGET
Once you know how much money you need. Adjust your budget so that you can reach that monthly savings goal.
Consider cutting back on optional expenses if you already follow a budget. Or, if you’re investing for retirement or other purposes, you could think of shifting some of those savings toward your down payment budget.
If you aren’t actively budgeting your cash, now may be a good time to begin. This guide surrounds the basics of how to start budgeting.
4. ADJUST YOUR SPENDING PRIORITIES
When you’re saving money for a home, you’ll probably require to shift your financial priorities.
For example, maybe you’ve been saving for a dream holiday or a new car. If buying a house is a bigger focus in your life, then you should shift those savings toward your down payment budget.
Or maybe you’re not energetically saving much, but you spend a lot of money on diners and enjoyment. By decreasing your discretionary spending, you can save more cash every month, getting you closer to your goal of evolving a homeowner.
“Discretionary spending” is optional spending. It can have enjoyment, dining out, clothing, streaming services, subscriptions, and more.
You don’t have to stop all unnecessary spending, of course, but you can make improvements more rapidly if you can cut back here and there.
5. FIND NEW METHODS TO SAVE MORE MONEY
Along with cutting back on optional spending, you can also find creative ways to save some extra money. Here are some ideas:
- You can lower your grocery bill: Groceries aren’t optional that doesn’t mean you can’t save money! By learning about budget nutrition, you can choose nutritious, inexpensive foods. When compared with restaurant bills, cooking at home can save you a lot of money. You can even use free food coupons to get free meals!
- Reduce your housing costs: You’ll likely have to rent until you buy your first home. Here are some ways to cut your rental costs. Perhaps you can get a roommate or downsize to a smaller dwelling.
- Use coupon codes: You can save additional money on almost all your purchases if you use coupons and promotional codes. Are you tired of searching for coupons? Use gently to automatically apply coupons at checkout.
- Use Tax refund: If you get a tax refund, consider saving the entire amount for your down payment. Come April, you’ll have a lot to look forward to!
6. SET UP A SEPARATE SAVINGS ACCOUNT
Now, what do you do with all that money you’re saving?
Opening a new, separate savings account for your down payment can be very helpful. If you can, use this account only to make your down payment. Open an account at your existing bank or choose high-yield savings to account from an online bank. Either way, it’s helpful to think of this money as “off-limits” for everything except your future down payment.
7. AUTOMATICALLY TRANSFER FUNDS
Automating your savings can help guarantee you stay on track.
Most banks allow you to set up automatic transfers between different accounts. You are dedicated down payment savings account has been opened, set up an automatic transfer (weekly or monthly) to this new account.
8. CONSIDER YOUR INVESTMENT OPTIONS
It is best to keep your money in a savings account if you plan to buy a home soon.
Investing a portion of your down payment savings can sometimes make sense if you have a longer timeline.
There is always the risk of losing money when you do this. If you invest, your money could potentially grow faster.
When it comes to investing, there are many different options and a lot to learn can investing. Let’s look at some investment options that may make sense for saving for a down payment. They are listed in order of safety to risk.
9. CONSIDER STOCKS
Stocks are a way to purchase very small pieces of large companies, like Apple or Ford. Stocks can be purchased through a brokerage account or a trading app. You can buy stock ETFs and mutual funds, allowing you to invest in hundreds of different companies. Stocks are risky investments.
10. THINK ABOUT WAYS TO INCREASE YOUR INCOME
Your savings can be accelerated in two ways by saving more money or by making more money. You have maximized the savings side of the equation, focusing on increasing your income. You can save 100% of any “extra” income you earn if your current income is sufficient to support your lifestyle.
CONCLUSION
Saving up for your dream home, especially for first-time homebuyers takes time, but it doesn’t have to be difficult. Calculate how much you need to save, divide it into monthly amounts, and reduce your spending accordingly.