8 Strategies to Save Up for a Down Payment
The cost of housing keeps rising, making homeownership a tougher goal to achieve. But what many don’t realize is that they are already paying off a mortgage – just not their own. By investing in property, you can redirect that monthly payment to build equity and secure your financial future. But there is a major obstacle to consider: that pesky down payment. Although many have the income required for a mortgage, insufficient savings is what stands in their way. Saving up for a down payment is a crucial step on the path to homeownership. While it may seem daunting, with careful planning, disciplined saving and the expertise of real estate professionals, you CAN achieve your goal. In honor of Homeownership Month, we'll provide you with practical strategies and expert tips to help you save up for that all-important down payment.
Set a Realistic Savings Goal
Establish an understanding of how much house you can afford, then use that information to determine how much you will need in savings before moving forward with your house hunt. Consider factors like mortgage insurance, HOAs, property taxes and closing costs. A mortgage professional can help run these numbers to establish a realistic expectation, and they may offer additional advice like whether building a savings or reducing debt is the more important step at this time. Reaching out long before you are ready is invaluable – you may even discover you’re closer than you think.
Create a Budget and Track Your Expenses
Once you have a savings goal set, look over your income and expenses to identify potential ways to reach that goal sooner. Utilize budgeting apps or spreadsheets to track your spending and stay accountable. Some popular tools to consider include Mint, YNAB, Personal Capital, PocketGuard, Shoeboxed, Expensify, Wally and Goodbudget.
Automate Your Savings
Automating your savings is a game-changer when it comes to achieving your financial goals. By setting up automatic transfers from your checking account to a dedicated savings account, you eliminate the temptation to spend the money impulsively. Each month, a predetermined amount is seamlessly moved into your savings, making it effortless and consistent. Treat your down payment savings as a non-negotiable expense to ensure consistent progress.
Reduce Monthly Expenses
Evaluating your discretionary spending will help you look for opportunities to trim unnecessary expenses. Consider alternatives to costly habits or subscriptions and redirect those funds to your down payment savings. Small changes can add up to significant savings over time, allowing you to achieve your financial goals faster and with less financial strain. By embracing a frugal mindset and making conscious choices, you take control of your expenses and pave the way toward a more financially secure future.
Increase Your Income
Increasing your income is a great way to meet your savings goal sooner. Start a conversation your employer to discuss opportunities for a raise or promotion. You can also explore opportunities for side income that leverage your assets, skills and hobbies. Some ideas for side hustles include Uber, Lyft, Doordash, GrubHub, Postmates, Instacart, TaskRabbit, Rover, Upwork, Fiverr, Gigwalk, Poshmark, Field Agent, Wyzant, Sittercity, Shopify, Ebay and Etsy.
Save Windfalls and Tax Refunds
Utilizing windfalls and tax refunds as a strategic savings tool can help you fast track your journey towards homeownership. Instead of succumbing to the temptation of immediate spending, consider directing these funds towards your down payment savings. Whether it's a bonus at work, an unexpected inheritance, or a sizeable tax refund, saving these windfalls can bring you one step closer to unlocking the doors to your new home.
Explore Down Payment Assistance Programs
Research local, state and federal programs that offer down payment assistance or grants for qualified buyers. Understand the eligibility criteria and application process to take advantage of these resources. Colorado offers a range of down payment assistance programs to help prospective homebuyers achieve their dreams of homeownership such as The Colorado Housing and Finance Authority (CHFA), The Metro Mortgage Assistance Plus program and The Colorado Housing Assistance Corporation (CHAC). You can also look into alternatives to a conventional loan such as Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans and Veterans Affairs (VA) loans.
Seek Professional Guidance
An experienced Realtor® will know quite a bit about leveraging every possible asset you have to achieve your homeownership goal. They can share their knowledge and help connect you with other experts in their network who can help you achieve your dream of homeownership faster than if you did it alone. Start a conversation with a Realtor today – and if you need help looking, refer to this blog about how to find a great Realtor®.
Saving up for a down payment requires discipline, perseverance and smart financial choices. Utilizing these tips can help you can make steady progress toward your homeownership dream. Remember, every dollar saved brings you closer to opening the door to your new home and taking advantage of the experienced wisdom of real estate professionals will help expedite the process. Stay committed, and your efforts will be rewarded.
