5 steps to build up your savings for a home down payment
If you're a first-time home buyer, the big challenge is saving up enough money for the down payment. Financial experts tell us you need to take aggressive steps to cut spending, add income, or do both. Here's how to proceed.
1. Set a goal and timeline. Find out the price range of the type of home you want in the area you like. Then talk to mortgage professionals like us to get an idea of the down payment you'll need, which could be up to 20% of the purchase price. Then set a timeline and figure your monthly savings goal. For example, if you need to save $20,000 in two years, you'll have to put away $833 each month.
2. Open a separate down payment savings account. This keeps the money separate and makes it easy to track progress. The experts say that when you're saving for a short-term goal, put the money in a low-risk investment such as a savings account or a CD.
3. Small steps to big savings. Put together a budget based on what you're spending, and then look at the following to make cuts:
• New clothes and impulse purchases; daily costs like a specialty coffee; monthly subscriptions; car costs you can reduce by carpooling. Always ask before spending, "Do I really need this, or do I just want it?"
• Shop in physical stores, not online, and use cash, not credit cards.
• Make cuts in gym memberships, vacations, and entertainment.
4. Big steps to bigger savings. If you can handle some lifestyle changes, consider these options:
• Move in with family for a specified period of time.
• If you have the space, take in a roommate.
• Move to a smaller apartment: the rent can be substantially lower.
• Add income by working overtime if possible, or take on another job (a part-time job at a home improvement store can even help you learn more about maintaining the home you'll buy).
• Sell your car and trade down to a lower-cost vehicle.
5. Look at retirement accounts. If you have a 401(k) and contribute more than your employer will match, think about putting that extra money into your down payment savings account. If you have an IRA, you may be able withdraw funds without penalty to buy a first home, although you might have to pay income taxes. As with all tax matters, check first with a tax professional.
Contact The Crockett Mortgage Team for more information on the purchase or refinance of your home.