The more specific a goal is, the more likely a person is to reach it. When it comes to a down payment on a house, first consider the price range for the type of house you are hoping to buy.
Some people insist that a deposit of 20% of the purchase price is the wisest move. A higher deposit will make it easier to secure a loan and lower monthly payments. That said, 20%, while admirable, is not always necessary.
According to bankrate.com, conventional loans requirements are between 3% and 15% of the purchase price. This means you might be able to buy a house sooner than expected, but you will pay more each month on the mortgage. And remember that expenses that were once the landlord’s problem will be yours when you are a homeowner.
The bottom line is that the more you can put down, the better. So start saving as soon as the idea of buying a home enters your mind.
Just like with any large purchase, there are many ways to save for a downpayment on a home. Some of these tips are small things that won’t have much impact on your day-to-day life.Others involve larger sacrifices that may be difficult. Remember the goal of turning the key to enter your very own home. If you are determined to make it happen—it’s possible—even while you are renting.
Set up a separate bank account for your house deposit savings. You will be less likely to spend the money if it is not commingling with the cash you use for bills and day-to-day expenses. You can even use direct deposit to put a portion of every paycheck aside.
If you can, send any “extra” money directly to your house deposit fund. This could include your tax refund, stimulus payments, a work bonus, or even extra take-home pay from a raise. If you were getting by without it before, you won’t notice it isn’t available to spend.
Seeing where your money goes is often eye opening, and always helpful when it comes to budgeting. It’s not unusual to be shocked to realize just how much you spend on things that really aren’t necessary. Once you know where your cash is going, write up a realistic budget and stick to it.
While examining the budget, there are a lot of little ways to trim spending without causing much hardship. Instead of driving to your favorite coffee shop, can you walk or ride your bike? Or maybe you could skip it altogether and make your coffee at home. Consider working out at home or the local park instead of the expensive gym membership. Or if skipping the gym is a nonstarter, maybe skip the expensive organic smoothie on the way home. And how many subscriptions and streaming services do you truly use on a regular basis? Little changes can add up to big savings.
There are expenses we take for granted that can sometimes be reduced. For example, have you reviewed your car insurance policy lately? You could find something more affordable. Check what you’re paying in bank fees. Even adjusting your thermostat by a few degrees can save money on utilities.
Credit card debt, student loans, a car note—all of these not only affect your credit score, but can limit your options when shopping for a mortgage. Lenders look at a borrower’s debt to income ratio. Paying off debt will make you a better candidate with the bank and will score you a lower interest rate when you’re ready to buy the house of your dreams.
Resist the urge to spend big while you are saving for a house deposit. Sometimes it is absolutely necessary, but if possible, wait to buy a new car, furniture, electronics or any big-ticket items. This is not the time to book an expensive vacation. Just remember that all of these sacrifices will be worth it when you can call yourself a homeowner.
Not only will selling excess stuff bring in some cash, it will also clear out some clutter. When you do move into your home, there will be fewer boxes to load. Today, there are online marketplaces for all types of clothing and home goods. If you are renting a house with a garage, you can have a garage sale (as long as your landlord approves). Or, find a friend or relative who is willing to let you use their yard or garage for a sale.
You can consider taking on a second job or put your skills to work for a side hustle. Driving for Uber or Lyft is popular, but you could also consider babysitting, tutoring, landscaping, or any number of services that are in demand. It’s not for everyone and requires some upfront money, but many people enjoy success selling products through multi-level marketing companies.
You will need to check your lease and get your landlord’s consent for this tip, but if you have the room in your rental, you might want to consider getting a roommate. Splitting your expenses for rent and utilities can give you a huge head start on reaching your house deposit goal.
If your rental home is expensive, you might consider moving someplace more affordable. Remember that amenities like swimming pools and workout rooms may be bumping up your rent. And if you don’t use those features, you’re wasting money. Breaking a lease isn’t advisable, but if the rental agreement is coming to an end, it might be something to consider. While this tip is drastic, it can get you closer to achieving your goal—or at least getting there faster.
You may be lucky enough to find a rental home that the owner is willing to sell to you. The two of you can enter into a rent-to-own agreement. This usually requires that you pay a one-time, non-refundable “option money”. This is typically about 2 to 7% of the purchase price. Over the next 1 to 3 years (whatever the two of you decide) you pay rent, with a portion going toward the down payment. At the end of that timeframe, you will have made a considerable dent in the house deposit amount. Plus, you can spend that time enjoying the home that will one day be entirely yours.
When you’ve finally saved enough and are ready to start shopping, the next step is to find a great real estate agent. We partner with Berkshire Hathaway HomeServices Select Properties. They are experts who work with new homeowners all the time.
Until that time, keep saving! All of the hard work and sacrifice of saving will be well worth it when you can finally call yourself a homeowner.
Cover photo by krisanapong by Canva.com
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