Last Updated on April 25, 2023 by growinghome.la
So you’re thinking about buying a home, but struggling to save up enough money for a down payment. Don’t worry, you’re not alone. Saving up for a down payment can be a daunting task, but there are some creative ways you can save money without sacrificing your lifestyle. Here are seven ideas to get you started.
Down Payment of a House Tip #1: Set a Specific Savings Goal.
The first step to saving for a down payment of a house is to set a specific savings goal. Determine how much you need to save for a down payment and then break it down into smaller, more manageable goals. If you need help figuring out how much house you can afford, I recommend budgeting no more than 40% of your take home pay as your targeted housing payment.
Research on goal setting shows that being as specific as possible and breaking them down into smaller milestones significantly increases your likelihood of reaching your goal. When I was saving up for a house, I decided to start small and work up to saving 10-15% of my take home pay towards our down payment and other home buying costs.
Down Payment of a House Tip #2: Trim Your Expenses
One of the most effective ways to save for a down payment of a house is to cut back on unnecessary expenses. Evaluate your expenses and see where you can cut back. Start with taking a close look at your last 3-6 months of spending. Identify areas where you can and, most importantly, feel motivated to reduce or eliminate spending. This could include eating out less or canceling subscriptions or memberships you don’t use. You could also find cheaper alternatives for things like cable or internet. Every dollar you save can go towards your down payment goal, so be diligent about cutting back on unnecessary expenses. Don’t worry too much about the small joys you might have like a latte from your favorite coffee shop. Larger expenses like shopping sprees, going out to eat, or getting take out instead of cooking add up most quickly.
As mentioned in my blog post about How to Buy a Home, I’ve had my share of challenges when it comes to personal finances. My biggest advice is to look at your spending habits as objectively as possible. Don’t judge yourself for past spending, just note what categories you’d like to cut down on. Identify categories and spending items that won’t make you feel like you’re not able to enjoy yourself at all. Just like being on a strict diet, cutting out everything fun can cause you to feel resentful. It may even spark a backlash or “cheat day” that blows all the progress you’ve made.
Down Payment of a House Tip #3: Look for Additional Sources of Income
If you’re struggling to save for a down payment on a house with your current income, consider looking for additional sources of income. This could include taking on a part-time job, freelancing, or selling items you no longer need. If you have the ability, you could also consider renting out a spare room in your current home. If you have a hobby or skill that you can turn into a side business, go for it! Every extra dollar you earn can go towards your down payment goal, helping you reach it faster. Just be sure to factor in any additional taxes or expenses that may come with these additional sources of income.
Down Payment of a House Tip #4: Automate Your Savings
One of the easiest ways to save money is to automate your savings. Set up a direct deposit to a separate savings account specifically for your down payment. By automating your savings, you won’t even have to think about putting money aside each month, it’ll just happen automatically. This will make it easier to stick to your savings plan and keep you on track. This is the number one most effective strategy I used to save over $40,000 in about 2 years. Many personal finance experts recommend thinking about this as “paying yourself first.” Waiting until the end of the month to see whether you have anything left doesn’t work nearly as well. I can tell you from first-hand experience. It’s an amazing feeling to look at your savings account every month and see it increasing like magic. It can be a fun game to see how much you can save each month!
Down Payment Tip #5: Use a Budgeting App
Consider using a budgeting app to help you stay on track with your savings goals. Apps like Mint or You Need a Budget can help you track your expenses, set up a budget, and monitor your progress towards your down payment. By using a budgeting app, you’ll have a better understanding of where your money is going and be able to make adjustments as needed. Think of these apps as helping you assign each dollar a specific job. That way, your money is flowing and working for you every day.
Down Payment of a House Tip #6: Consider Alternative Living Arrangements
Housing is often the highest ticket expense that we have, so changing your living arrangements can make a huge difference. If you’re really struggling to save for a down payment on a house, consider alternative living arrangements that can help you save money on rent or mortgage payments. This could include living with roommates, downsizing to a smaller apartment or house. It might mean moving to a different neighborhood, or even living in a tiny home. While these options may not be ideal for everyone, they can help you save money on housing costs and put more towards your down payment savings. Just be sure to weigh the pros and cons and make a decision that works best for your individual situation and how quickly you want to reach your goal.
Down Payment Tip #7: Explore Down Payment Assistance Programs
Many states and cities offer down payment assistance programs to help first-time homebuyers. These programs can provide grants, loans, or tax credits to help cover the cost of a down payment. Some programs may have income or credit score requirements, so be sure to research and see if you qualify. You can start by checking with your state or local housing authority or visiting websites like Down Payment Resource to search for programs in your area. You can also check out my blog post on home buyer programs, here.
There you have it, five creative ways to save money for a down payment on a home. Remember, saving for a down payment takes time and effort, but with a little creativity and discipline, you can achieve your goal of homeownership. If you’d like more help in reaching your home ownership goals, you can also work with me in The Stress-Free Homebuyer Academy, where I offer personalized support to make sure you’re ready to buy a home and that you’re confident in the process.