How to Save Enough Money for a Down Payment

Saving enough money for a down payment on a homes is not as easy as it used to be. In the late ‘90s and up to 2007, most hard-working Americans were able to buy more “bang for their buck.” Now, with inflation ever on the rise, many find it more difficult to invest in their future.

Families are forced to focus on more daily needs such as: food, shelter and clothing. There is little room for savings. That doesn’t mean it can’t be done. Here are some simple strategies that can be implemented to start saving money for a down payment, today.

Count the Cost

When you are on the cusp of home ownership, it is important to understand all the ins and outs right up front, so there are no surprises or setbacks that leave you regretting the whole endeavor. Generally, the benchmark figure for a down payment is at least 20% of the price of the home you are hoping to buy. There are options where you are able to put down less than 20%, but then you must take into consideration other fees and charges that may increase your monthly house payment or other financial situations in the future.

Get With the Program

Even though 20% or more is ideal for a down payment, there are small down payment programs that may aid those who are not able to save this large of a sum.

  • An FHA Loan allows the homebuyer to put down 3.5% if their credit score is average or below average.
  • Fannie Mae and Freddie Mac (government sponsored enterprises) are enabling lenders to offer 3% down payment mortgages to eligible home buyers.
  • Veterans, and other service members, can apply for a VA loan where there is no down payment nor any mortgage insurance.
  • USDA loans are offered to qualified homebuyers in mainly rural areas. These loans have low rates and 100% financing.

It’s the Little Things

Baby steps and little short cuts may be just the ticket you need to start socking away the funds necessary for home ownership.

Being intentional about transferring funds for savings can be easy for some and seemingly impossible for others. Consider talking to your employer about diversifying where your monthly income is placed. Set up a separate account for a portion of your monthly earnings to filter in and let the balance increase. If it is out of sight, then it is often out of mind. Another similar approach would be to set up automatic transfers with your bank or credit union. This way you could be adding money to a savings account from your checking account, without the hassle of having to remember to do it on your own.

The envelope system is an age-old practice that has been proven to work, and it works faster than you think. Set aside designated envelopes for all of your bills and necessities. Once you have done that, then set aside an envelope just for left over money. As you will start to see very quickly, the dollars will add up. Before you know it, you’ll have a substantial amount of savings. This idea may seem archaic in a paperless world where physical money is a hassle to handle, but for some personality types this might be the only system that helps to build a structure for saving towards a future down payment.

Saving a tax refund or a raise or bonus you receive from your employer could be vital to reaching your goals quicker. Large families with simple spending lives can often receive large tax refunds. With the flux of life, those returns are often used for other needs and expenditures. Instead of immediately spending the return, consider putting it away for a rainy day, and over the course of a couple years you could reach your down payment goal.

Lastly, if you have a well running vehicle that is fully paid for, then keep it. In a culture where we are always told to buy the latest and greatest, resist the urge for that new vehicle. The money that you will be saving by not having a monthly car payment can be put away for the new home you are want to purchase down the road.

Start Saving Money for a Down Payment Now

There are various systems and angles you could approach for saving for a down payment, but the biggest and most important step in the whole process is starting right away. For the aspiring home buyer, who is less disciplined when it comes to saving, it might take several years to have enough for a down payment. Start simple and use those automatic methods that evade your procrastination. If you have any other questions or concerns about how much money you need to be saving for a down payment, you can contact one of the professionals at Galaxy Lending Group at 602.595.1233. We’ll be happy to help.