Home ownership is widely known as the American Dream. It’s a dream shared by most, and one that can only become a reality through hard work and – of course – money. Considering the high price of homes throughout many areas of the United States, that can mean a significant amount of money. Many banks exist for the sole purpose of lending money to people so they can buy homes, but what about the down payment money?
It can seem like a daunting task to come up with the lump sum required for a down payment and all the fees associated with closing on a home. Here are some tips to help you along the way.
6 Easy Tips for Down Payment Savings
Set a goal.
If you don’t have a specific amount in mind, saving will seem like a never-ending process. Establishing a goal and a budget will give you a general idea of how long it will take to save up the necessary down payment. First, determine how much you intend to pay for your home. Then figure on setting aside 20 percent of that amount for a down payment plus an additional 1 to 2 percent for closing costs.
Many lenders and realtors have online calculators for estimating monthly mortgage payments. Once you arrive at the approximate amount of your future mortgage payment, make it your goal to save at least that amount each month. Doing so will allow you to save money while also training yourself to make your monthly payments.
Hide your savings.
Once you decide to save for a down payment, designate a separate bank account for that money. Make sure this account isn’t easily accessible to you so you can avoid tapping into it.
As a working adult, maybe you’ve gotten used to having a certain amount of disposable income. Dining out, traveling, socializing with friends, and buying clothes and so-called “toys” can really add up. When you decide to save for a home, you’ll need to change your lifestyle. For some, that can mean moving back in with their parents, if they’ll have them. Others may decide to downsize their living situation to a more economical place with a cheaper rent. Regardless of where you live, you will absolutely need to cut back on entertainment and unnecessary expenses.
Even if you already have a full-time job, you may want to consider picking up extra hours or even a second job. The additional time and energy you spend working will pay off in the long run.
Sell a valuable possession.
Do you have a car, motorcycle, boat, or other costly item you don’t need? Now may be the time to sell it. If you own stocks or other investments, you might want to explore the tax burdens and financial penalties involved in liquidating them; it could be worth it to cash them out.
Save unexpected income too.
It can be tempting to spend large sums of money such as tax returns, bonuses, commission checks, and inheritances. Resist that urge, as those windfalls can help propel you toward your goal of owning a home in much less time.
After you have reached your goal and are ready to take the next step into purchasing a home, feel free to give Cliffco Mortgage Bankers a call at (516) 408-7300 or contact us by filling out the form here.