Every month you pay the rent, you’re probably thinking, “I wish this money were going into my future.” For a lot of would-be first-time home buyers, it’s the down payment, which makes home ownership seem impossible. We want to encourage you, climbing the “down payment mountain” isn’t impossible. Like any significant challenge, it’s all a matter of breaking your essential, challenging, audacious goal down into practical steps.
Here are some tips for conquering saving for a down payment:
Find out where your money goes. You can’t start saving money if you don’t know where you’re spending the money. For a month or two, track each expenditure, no matter how small. Get an objective picture of where you’re spending the cash.
Get specific about how much you need to save. Even if you’re not 100% sure what your down payment needs to be yet, it’s good to start doing a little math to figure out how much you need to save. Pick a dollar amount and a timeline to hit that dollar amount. For example, a $25,000 down payment in two years comes to $1,041/month. Sound unrealistic? Either scale down your home desires to something smaller or scale up your timeline. If you can wait three years, that monthly savings goal drops to $694/month.
Determine the big moves you can make. If you’re in a three-bedroom apartment and can handle the idea of scaling down to a one-bedroom, how much would you save in rent? What about going from two cars down to one? If you can make it work, these sacrifices will have a massive impact on your savings goals.
Establish a separate savings account. Don’t let your dream home money mingle with your regular checking or savings account. Establish high-yield savings account with a credit union or money market account to protect and build your savings. It’s essential to have a separate account with a “hands-off” attitude.
Pretend you already have a house payment. Once you determine the approximate amount of what a new house payment would be, start making that payment now. Instead of paying the bank, pay your savings account. This trick is two-fold. It will help you accumulate a down-payment faster, and it will ensure that you can afford the amount of the new house payment.
Mind the risky investment schemes. Once you have a little momentum, it may be tempting to take some of that cash and invest it to make it grow faster. Be very prudent about this, as investing in stocks, startups, or high-yield funds can quickly decimate your savings. Be conservative.
Of course, it’s essential to know how much home you want to buy when you’re saving up for your down payment. I’m happy to give you an idea of what homes are selling for in your area.
Feel free to get in touch at any time if you have questions.