One of the largest hurdles for first time homebuyers is saving for the down payment. The down payment demonstrates to the lender that you have the resources to make monthly mortgage payments on time. The higher the down payment, the less risk you represent as an investment. With this low-risk qualification, this can mean lower interest rates, and may even eliminate the need for mortgage insurance. So, let’s talk about the various ways you can save for a down payment.
Cut Back on Necessary Expenses
The very first thing to do when saving for a down payment is to make a budget so you know how much you bring in every month vs. how much you spend. Make a line-item spreadsheet so you can determine the expenses that are unnecessary. The goal isn’t to cut back on everything in your life making everyday miserable, the goal is to gradually cut back so you can put those savings toward your down payment. Consider cutting back on how much you eat out or take a break from impulse buying online. Some people even have multiple subscriptions of the same category (multiple music streaming platforms) which provide similar services. These could be some areas that could be cut back.
Pick Up a Side Hustle/Second Job
If your job is not bringing in enough to save for a down payment, consider picking up a side hustle. Today’s gig economy makes it easy to turn free time into money making opportunities. If you enjoy painting, consider selling your artwork on Etsy. If you enjoy teaching dance, look for some teaching opportunities in your community. And if you have the time and your home situation allows, consider picking up a seasonal second job. This can produce some major savings that you can use toward your down payment. Sometimes it takes sacrificing a few months, to help secure a mortgage.
Save Your “Extra” Money
Put all the money you receive for your birthday, holidays, bonuses, tax returns, etc. into your savings account. This can snowball quickly if you are trying to save for a down payment. Putting this money directly into your account, soon after you receive it will help you avoid feeling the “pain” of not spending it, since you do not really see it. This amount does not have to be thousands of dollars. Even if it is just a few hundred here and there, everything adds up.
With the ease of selling items online, this is an area where you can make some significant money. If you’re hoping to move soon, you might also be looking to get rid of a lot of your belongings, so this is a win-win. Consider selling your furniture verses donating it and put those earnings towards your down payment. This is more work and does require more time than simply donating your items, but the profits can be worth it.
The best advice we can give is that every little bit helps. Cutting back expenses, considering additional sources of income, savings your extra money and selling unwanted items can help you reach your goal. By keeping your eye on the prize, you might be surprised how quickly you can save enough for your down payment and achieve your dream of homeownership.