When you’re gearing up to buy your dream home, you have to make sure that you’ve got enough money saved. Putting down a deposit is one of the largest expenses in the process, and if you don’t have enough you may not be able to secure a mortgage for your home.
If you’re looking to save as much money as possible for your down payment, you’re in luck. In this article we’re going to provide 5 of the best tips to help you save for your house deposit!
Why Does a Larger Deposit Matter?
The down payment is often the most talked about aspect of securing a mortgage, but why? Well, the larger your down payment, the better your mortgage, in most cases.
When you put more money down on your home initially, you unlock lower mortgage rates, which means you save money over the life of the loan. This can significantly reduce your overall expenses for your entire life. If you can take out a mortgage for less you will immediately be paying lower monthly fees.
If you’re wondering what your mortgage payments may look like, try using a Digital Mortgage Calculator to find out!
How Much Do I Need to Put Down?
Often, the standard for a down payment is the same across the board – 20%. This is the amount that most lenders are going to require.
While it is quite commun to recommend that you put down more if you can, , there are certain mortgages that allow you to put down less than the standard 20%. Some conventional loans will let you put down as little as 3%. Other loans, like USDA and VA loans allow you to put down no money whatsoever! Be warned, though – you may have higher payments and a more expensive loan overall if you go this route.
5 Tips for Saving for Your Down Payment
If you’re thinking about buying a home anytime soon, it’s time to start saving! Check out these tips to put away the most money as you search for your forever home.
1. Budget Thoroughly
The best way to put extra money away for your dream home’s down payment is by budgeting. When you can determine where your money is going every month, you can also find pockets to save.
Sit down with all of your finances. This includes your pay stubs, bank statements, and credit card payments. Assess where your money is going by categorizing it in one of two basic categories:
- Necessities: Rent, utility payments, student loan payments, groceries
- Luxuries: Going out to eat, entertainment, etc.
As you determine these expenses, you can start to cut back on luxuries and put more into your savings account. You can always add a little bit more here and there.
2. Cut Out Bad Habits
It probably comes as no surprise that most bad habits are also money pits. They cost quite a bit, and every cent you spend on them is another cent that’s not going into your dream home.
After you’ve created your budget you can target your worst habits fairly accurately. You may be shocked enough to cut them out of your life completely! Two of the most common you’ll find are impulse buying and eating out.
Both of these activities add up over time. Sure, a meal from your favorite fast food place may be $10 total. But, if you eat that meal several times a week, you’re wasting hundreds of dollars every month! The big picture is what counts here.
3. Start a Side Hustle
If your current employment isn’t highly demanding, you may want to consider starting a side hustle! A second income is one of the best ways to amplify your monthly income by utilizing the spare time you have.
When you’re looking for side hustles, it isn’t necessary that you start your own small business. It doesn’t have to be that complicated. In fact, in most cases, it’s easiest to get a part-time job where you can easily put to use your mastered skills.
Driving for Uber or Lyft can put a ton of money into your pocket in just a few hours, as can food delivery driving. Interested in teaching? There are many online English teaching gigs that take place during the night, where you’ll teach kids from around the world! With a little creativity, there’s a ton of money to be made out there.
4. Destroy Your Debt
This may seem counterintuitive, but we promise it isn’t. Sometimes, you have to spend money to save money, and that’s exactly what crushing your debt is going to do for you.
When you’re looking to buy a home, lenders are looking at your credit score and history, as well as your debt-to-income (DTI) ratio. When you pay off your debt, you’re improving all aspects of your credit, as well as reducing your DTI ratio. This helps you get a lower interest rate, and can decrease the size of the required down payment for your loan.
5. Downsize Your Life
Take a look around your current home and you’ll likely find things that you’re no longer using. An overlooked way to put extra money in your savings account is by selling those things!
Try using apps like LetGo, or Facebook Marketplace. Many people are willing to buy used or secondhand items since it’s going to save them hard-earned cash, too. Just make sure to set your prices right – you’ll get no traction if they’re too high or lose money if you set them too low!
Another way to downsize is by skipping vacations or time off. When you take time off to go on a vacation, you’re only spending money. If you need the time away from work, though, take a staycation! This gets you out of the office and lets you enjoy your family and home while spending significantly less money.