Saving for a down payment on a home can be challenging for many people. But, it’s not impossible. The most important thing to do is stay positive and prioritize your life to reduce unnecessary expenses. Below are some of the best mortgage down payment saving strategies to get you started.
1. Eliminate Debt
The biggest challenge in saving for a down payment is getting ahead of debt before you buy a house. Paying off high-interest debt can free up a large portion of your income to be put toward other things, like saving for a down payment.
2. Set a Budget
It may sound simple, but setting up a monthly budget can really help you determine what you have left to spend and how much extra money you can set aside for a down payment on your home. There are many different types of budgeting apps out there that you can install on your phone to help you stay on track. But, the most important thing is to stick with one and make sure you’re keeping your spending within the boundaries of it.
3. Reduce Expenses
Reducing your expenses can be difficult at first, but it’s worth it in the long run because you’ll find yourself with more free money to put into a down payment fund. Try to avoid eating out as much as possible and cut back on unnecessary expenses that you don’t really need, like video streaming subscriptions and gym memberships.
4. Set Up Automated Transfers
Another great way to increase your down payment savings is by setting up automated transfers from your checking account to a savings account. This can be done through your bank or by authorizing your employer to automatically deposit a certain amount of your paycheck into a savings account on a regular basis.
5. Get a Part-Time Job
Finding a part-time job or asking for additional hours at your current full-time job can boost your down payment savings by increasing your earnings. If you have the option to work from home, it will give you more flexibility in your schedule.
6. Use Gifts to Raise Down Payment Goals
Asking family members for a gift of cash or a lump sum of money can help you reach your down payment goals. However, it’s important to check with your tax advisor about how these gifts may affect your taxes before making them part of your plan.
7. Cut Back on Unnecessary Purchases
When it comes to saving extra money for a down payment, you’ll have to make tough choices. It can be easy to splurge on a new piece of jewelry or go out to a fancy restaurant, but you’ll need to do so in moderation and focus on your priorities.
There’s no magic number when it comes to how much you should save for a down payment, but saving as much as possible is important. It will allow you to qualify for a mortgage that’s affordable without draining your savings and give you the confidence to buy a home of your own.
Depending on your circumstances, it may be better to make a smaller down payment instead of a larger one. However, you’ll be less likely to pay private mortgage insurance (PMI), if you put down at least 20% on your home purchase. If you’re not able to put down 20%, be sure to ask your lender to remove the PMI after you’ve built up 20% equity in your home.
When you’re ready to move forward and start shopping for a home, be sure to get prequalified by a reputable mortgage broker first. Loan prequalification is a quick an easy way to see how much you can afford and what rate you’ll get on your loan, without affecting your credit score.
Lenders looking to add soft-inquiry solutions to their suite of services should schedule a demo with FPN to learn more about our fully customizable tri-bureau loan prequalification software solution, PreQual.