Purchasing a home is a big decision — and will make a substantial impact on your bank account. Even if you will be saving money in the long run when compared to renting, buying a home will require a good amount of cash up front for the down payment and closing costs. However, with some pre-planning and a few changes to your spending habits, you may find that saving the cash you need can be easier than you think.
How Much Do You Need?
Depending on the type of mortgage loan you apply for, you may be required to put down as much as 20 percent. Some home loans require a much smaller amount — three to five percent — but on a $200,000 home, that’s still a good chunk of change ($6,000- $10,000), not including closing costs. If you plan to put down 20 percent, we’re talking about $40,000 on a $200,000 home.
TIP: There are a number of programs to help reduce the amount of cash you will need for either a down payment or closing costs. Contact a home loan expert from PrimeLending to learn more about your options to save money.
Saving up that kind of cash may seem overwhelming, but it’s certainly not impossible. Here are eight tips to help you cut spending and stash away the funds needed for your down payment in one year or less.
Cut Your Spending — If you’re serious about saving for a down payment, it’s time to trim the fat and cut discretionary spending. That means movies and entertainment, dining out, traveling — reduce any non-essential spending until your down payment is stored up in savings. Look at your budget to see where you can cut spending. Every little bit helps. Eating out just one meal can easily cost $40 to $100 or more. Next time you’re planning a night out, just remember your number one goal during this year is to save for a down payment. If you don’t need it, you can live without it.
Get a Side Gig — Sure, it’s a sacrifice to work more hours, but you can do anything for a year. Find a part-time job to supplement your full-time income and put that extra cash directly into savings. Working a $15-per-hour job 15 hours a week will yield an extra $900 per month, before taxes. That extra paycheck can give you a giant boost toward savings for a down payment. If getting a second job isn’t an option, consider looking for a new full-time job that offers higher pay or bonuses. Working overtime at your regular job may also be a possibility that could even end up paying as much as a second job.
Downsize — Cutting your square footage can save costs, too. Especially if you’re currently renting. You may not think it’s possible, but if you have a spare bedroom, you could probably squeeze into a smaller house or apartment for a year. Do your children have their own rooms now and could they share a bedroom in the short-term? Make the move to a smaller rental and save a few hundred bucks a month.
Move In With Friends or Family — If they’ll have you, consider moving back in with your parents — or even your in-laws — while you pinch your pennies saving for a down payment. If it’s not possible to live with family, perhaps you could find a friend — or another couple — to live with while you save up for a down payment. Take advantage of any low-cost living opportunity you can find. Making the sacrifice in the short-term will pay off big dividends in helping you save up for your dream home, and it’s not just for your benefit. House-sharing can cut costs for all parties.
Sell Your Home — It remains a seller’s market (for now), so if you’re a current homeowner, even if you don’t have much equity, selling your existing home and downsizing to an affordable rental may be an option for you. Before you put your home on the market, meet with an experienced real estate professional in your area to determine if selling is the best option to help you save up for a new home.
Become a One Paycheck Family — We’re not advocating dropping that second income, but if you and your partner both work, living on one paycheck could be the trick. Trim your budget so you’re able to live off one income and stash the second paycheck in a savings account.
Save Any Windfalls — Bonuses, tax returns, gifts received, commission checks or profit off selling any personal assets or possessions you can do without. One-time infusions of cash can help you reach your savings goal faster, and if you’re living on a budget, you won’t need it anyway, so put all that extra cash straight into savings.
Downgrade (or Drop) Services — Cable and internet may seem like essentials, but if you must choose between entertainment and connectivity versus saving up for your dream home, what’s it going to be? The average cable bill costs at least $100 a month, but if TV is a must for you, consider switching to a streaming service that will just set you back less than $20 a month. Check with your cell phone provider to see if there are any more affordable options. Contact your insurance agent about reducing insurance coverage to lower the cost of your monthly premiums. Dropping your gym membership and working out at home instead can slim your budget by at least $50 a month.
If you’re considering a move in the next six to 12 months, check out our online calculator to see how much home you can afford and how much cash you will need for a down payment. When you are ready, contact PrimeLending to speak with a home lending expert in your area. Our experienced lending professionals can help answer your questions and get the pre-qualification process started.