Tips on How to Save: Ways to Fund Your Down Payment
Saving for a home can feel impossible. But it's important to put things into perspective and understand how much you actually need to save to be able to put a down payment on a home.
First, Determine How Much To Save For Your Down Payment
Let's break the myth that you need 20% saved for a down payment to purchase a home. The truth is that many lenders no longer require 20% down. The 20% down myth comes from the private mortgage insurance (PMI) rule that most lenders and mortgage investors have. If you have less than 20% down at closing, you may need to pay for private mortgage insurance. This protects the lender and mortgage investor if you default on your loan. Though having a 20% down payment will save you money over time, it’s not a requirement to buy a home.
So how much do you actually need for a down payment?
3% Or Less
Depending on a few things such as your credit score and income, you may be able to get a conventional loan with as little as 3% down. If you qualify for a USDA or VA loan, you can even buy a home with no down payment at all.
Once you have a good idea of about how much money you need to save, you should come up with a game plan to start saving (if you don't have one already). These are a few tips to help you save:
1. Create a budget
Budgets are important to keep you in check. If you don't know where your money is going every month, it's almost impossible to save any. The first step is to sit down with your bank statements and credit card bills and track where most of your money is going. Go ahead and subtract the necessary bills like your rent, car payment, insurance, phone bill, etc. and then note where the rest of your money is going!
Create a plan on how much you would like to spend on things like food, gas, fun, and then decide on things you can cut back on. From there, come up with a dollar amount that you are comfortable and capable of putting aside each month to save.
2. Cut out a bad habit
Maybe you're like me and you have a horrible habit of shopping and buying unnecessary things (I blame Target and Amazon for this). It honestly adds up quick! Set a goal not to purchase anything unnecessary for one month, and at the end of the month you will be surprised at how much extra money you have! Put that extra money aside. Save it. Buy a home with it. You don't need that $15 candle from Target or that random Amazon find...
3. Pick up a side hustle
It's 2021. We live in a time and place where there is ENDLESS opportunities to make money on the side. Whether it's through social media, maybe pet sitting, or selling items that you make... I can almost guarantee there's an enjoyable side hustle out there for everyone. Find it. See if it works. AND SAVE THAT MONEY.
The Bottom Line
If you want to save for a house, you should have a solid plan in place. Saving takes time. As tempting as it is to pass the extra time with a little retail therapy or an unnecessary door dash order, putting that extra money aside will help accelerate your path to homeownership.
It's the little things that count, so start a budget and follow it. I'm not saying to cut out all of the extras of your current lifestyle, but making smarter choices and limiting your areas of spending will make a big difference.
Like I said in the beginning, I highly recommend speaking to a Real Estate Professional when you begin making a plan. It's a good idea to create that relationship and understand what exactly it is you are saving for.
