Tips to Save for the Down Payment on Your First Home
If you’re looking to buy your first home, the down payment is probably a daunting sum of money that you don’t want to think about.
How are you going to save thousands of dollars on top of all your normal expenses? It may seem impossible at first, but there are plenty of little changes that you can make to help you put away enough money for a sizeable down payment, which will save you a lot more money in the long run.
Get Better at Saving
The first step to saving money for a down payment is to get better at saving. You’ve probably tried the normal routes of saving money, such as putting some into a rainy-day fund or automatically depositing a part of your paycheck into a retirement account. But when you’re looking to save for a large purchase, such as a down payment on a home, you’ll need to get a little more intentional with your saving efforts.
A great option for improving your savings game is to put your money into a high-yield savings account. Most people have a savings account at the same bank where they have their checking account, for obvious reasons. It’s easy to access and transfer funds between the two accounts, making for effortless depositing and extremely liquid savings. However, most banks have minuscule interest rates for savings accounts – the national average is 0.1% APY. A high-yield savings account is often through an internet-only bank, which is able to offer higher interest rates because they have next to no overhead costs. If you’re holding $5,000 in savings, your current savings account at the national average APY would return you $5 over the course of a year. That same amount in a high-yield savings account of 2% APY would return you $100.
Once you’ve established an account with a high-yield rate, you’ll want to start building that account to earn even higher returns. Set up an automatic deposit into that account each month from your paycheck so you never even get the chance to spend that money. One of the best parts of having your savings account in an internet-only bank is that it’s a little more difficult to get that money out since you’ll have to initiate an electronic transfer from the savings account to your checking account, which can take up to three business days. This makes it a perfect place to store the money you want to save for a down payment.
Lower Your Expenses
Now that you’ve established a place to put all your savings for your down payment, you’ll want to work on growing that account. Start by trying to reduce as many recurring expenses as you can and putting all the money that you were paying to those expenses in your savings account instead. The easiest ways you can start to lower your expenses:
- Ask for reduced rates – You’ve probably been paying the same amount for your recurring expenses for years, such as your phone bill or cable plan. Try calling up the companies for your monthly bills, especially if you’ve always paid the bill on time and in full, and ask if they can do anything to lower your rate. Often times, they’ll give you a better payment just for asking because they want to keep you as a customer. The same goes for your credit cards; call the bank and ask if you can get a lower rate given your record of on-time payments and never going over your limit.
- Consolidate debts – If you have multiple debts, such as a car payment, student loans, and credit cards, talk to your bank about your options for consolidating. Consolidating your debt means that you’ll take out a loan and pay off all your debts with that money, then you’ll just have one debt payment to pay off, often at a much lower interest rate.
- Stop unnecessary expenses – You’re probably paying for a lot of things that you don’t actually need and could be taking that money and saving it instead. Do you need your daily caffeine fix? Try making a cold brew at home instead of dropping $5 a day for the same thing at Starbucks. Do you only watch a few specific shows on TV? See if Hulu offers those shows on their platform and cancel your cable subscription. Even if they don’t offer your shows on the actual Hulu platform, Hulu Live TV is only $45 compared to many cable bills over $100.
- Stick to a budget – This is the most obvious but difficult tip to stick to. There are plenty of apps that you can download to track your spending and see where all your money is going, such as Mint. Once you see how much you spend each month in certain categories, sit down and brainstorm how you can reduce those months and stay within a smaller budget. If you buy lunch every day in your office’s cafeteria, try bringing your lunch instead. If you get pedicures every month with your girlfriends, try hosting a DIY spa day instead.
While you probably can’t just go up to your boss and ask for a raise in order to be able to save for a down payment, there are ways that you can add to the amount of money you’re bringing in. Just remember, any extra income you make should be put away into savings, not used as spending money on new shoes.
Working full-time may be enough to get by with your current expenses but getting a second job can really help you to rev up your saving efforts. As a first-time homebuyer, you’re most likely young and able to take on the challenge of working two jobs, so use that to your advantage! Pick up a part-time seasonal job around the holidays; you’ll be able to earn extra money on the weekends and use your employee discount to save on Christmas presents! You can also try driving for a ride-sharing app or working for a meal delivery service such as DoorDash, that way you can work your own hours when it’s convenient for you.
An often-forgotten but very helpful source of income is periodic windfalls – occasional events that bring in extra money. These can be birthdays, bonuses, tax refunds or any other unexpected source of income. Rather than treating these bonuses as extra spending money, put them into your savings account to give your down payment fund an extra boost. Additionally, there are many programs for first-time homebuyers to help you pay for your home, including grants, interest reductions, and tax benefits.
Before you start the journey to save for a down payment, talk to an experienced mortgage lender at Galaxy Lending Group. They will help you figure out how much you’ll want to save, what kind of loans you can qualify for and more. Galaxy is here to help make the home buying process go as smoothly as possible.