How to save for a down payment – without losing your mind!
Step one: Do your homework.
Determine how much you need to save. Traditional lenders on a conventional loan will typically expect a down payment of around 20%, but there are options for whom that amount is unrealistic, especially if you’re in a time crunch. Do your research and find out what type of loan is best for you. There are programs that require little to no down payment, just be aware that this may end up costing you more in the long run.
Step two: Target acquired.
Set a deadline for when you would like to hit your savings goal, then make a plan. (See Goal Setting 101)
Step three: Trim the fat.
Sit down and audit the last few months of your spending habits. What items stand out? Do you subscribe to 4 video streaming services but find yourself using the same two every week? Do you grab a breakfast burrito every morning when there’s a perfectly good box of cereal in your pantry? Chances are there are a few guilty pleasures that you can cut back on without significantly impacting your quality of life.
Step four: Set it and forget it.
There are several options when it comes to automated savings plans. Allocate a portion of your paycheck to your savings account. Much like a 401k, you won’t see this money on payday, so you’ll be less tempted to spend it. If you make multiple purchases a day, find an automated savings service that takes your change and squirrels it away – think of it as a virtual coin jar. Once you set up these systems, put your blinders on. Many savings accounts will allow you to withdraw up to 6x per month before they charge a fee, but try your best not to dip into these funds at all. You’ll be amazed by how quickly your stash will grow if you let it be!
Step five: Re-gift to yourself.
Gather up those gift cards and transfer the balance to your savings. Bonus at work? Transfer to savings. Tax return? Transfer to savings. Consider anything above and beyond your usual paycheck to be a step towards your goal of home-ownership. As much fun as it sounds to go on a bonus-fueled shopping spree, a thousand dollars from your tax return can shave months off of the savings process.
Step six: Expect the unexpected.
It never fails. The moment you feel like you have a handle on your savings, an unexpected expense will slam on the breaks. Consider creating an entirely separate account for these occasions. If you can make it through your next car repair without dipping into your down payment fund, you’ll be less likely to get discouraged or lose motivation.
Step seven: Keep going.
Congratulations! You’ve saved your heart out and have purchased your dream home. Now keep saving. Yep, that’s right! There will always be expenses related to home-ownership, and now that you’ve mastered the art of saving, you’ll be better prepared to roll with the punches. Remember, home-ownership is a marathon, not a sprint, so lace up those sneakers and hit the ground running!