Thinking about a down payment can put a damper on your quest to live the American Dream and purchase your first home. The average down payment for a home is around 20% of the total cost. To some, that seems like quite a bit of money to have in one place (hopefully your bank account), at one time. But, determining how much you’re going to need is the first step to getting there. The next step is to determine your time frame. How soon are you looking to purchase? Next up, stop panicking. Here are a few ways you can save money for a down payment.
1. Automate A Savings Plan
It’s a good idea to open a separate savings account and give it a name such as “Down Payment” or “House Goals” and only place money here that you intend to use in your home purchase. A traditional savings account will accrue interest quarterly, but you may see a better return and set interest rates with a Certificate of Deposit.
It’s also a good idea to automate the process and set up regular contributions to this account in your online banking center. This “out of sight, out of mind” approach will make it easier to live on less and save more.
2. Make Room in Your Budget
Take a long, hard look at your budget. For each of your line item expenses, ask yourself, “Is this a want or a need?” and trim the fat! Analyzing your monthly spending will likely highlight automatic subscriptions and memberships you do not actually use. As soon as you cancel these, set up an automatic transfer for the same amount to your savings account. You won’t even miss the money or the membership.
Of course, there are some monthly expenditures you feel you cannot live without. Don’t be afraid to call these vendors and ask for ways to lower your monthly bill. Many companies would rather offer a lower rate than to lose a valuable customer. If they aren’t able to help, take some time to price check with other services.
3. Gamify Savings
If you really want to get motivated to save money, gamify the process. Enlist the help of your spouse, significant other, or a group of friends to create friendly competition. Have each person set an attainable goal for the month and hold each other accountable. You could even come up with a non-monetary prize or penalty for meeting or missing the mark.
4. Don’t Touch Unexpected Money
From time to time, you may come into a bit of unexpected money. This is known as a “windfall.” Things like a bonus at work, a tax refund, or a generous gift from a relative fall into this category. You may be tempted to treat yourself, but it’s best to place these large chunks of income into your savings account immediately.
5. Find a Side Hustle
In today’s “gig economy,” side hustles are easier than ever. Brainstorm a list of things you love to do that could earn you extra money. Let your family, neighbors, and friends know that you’re available for odd jobs. If you have the time and the resources, sign up for sharing economy apps that offer services like errand running, dog walking, ride sharing, and more. It also doesn’t hurt to let your employer know that you are working toward a goal and willing to take on more responsibilities at the office in exchange for compensation.
Find things in your home that you can easily resell. You can do this all at once with a garage sale or use online avenues to get rid of things you no longer need. Take half a Saturday and clean out your closet. Get rid of furniture that you no longer use or that wouldn’t have a place in your dream home. You’ll earn some extra money and feel great about tidying up your place.
7. Lower Your Rent
While you’re saving up for your down payment, look into whether you could lower your monthly rent payments. You may not be struggling to pay your rent each month, but paying too much can hold you back from buying your dream home. Do you use all of the amenities that your current rental offers? If you live in an apartment, you may be able to transition to a smaller unit at a lower monthly rate. Could you survive with the parents for a few months if it meant reaching your goal sooner? All of these are important things to consider. On the other hand, no one likes to move and the process can be expensive. Be sure to analyze the total cost versus reward before making that decision.
From opening a new savings account to helping you pre-qualify for a home loan, the team at Peoples Bank is here to help you. For more information on the home buying process, download our handy Home Loan Checklist.