Saving for a down payment seems to be the biggest obstacle for people who want to purchase a home. While there are mortgage programs available that require little to no money down, many of them require PMI (private mortgage insurance) each month. This will slightly increase your payments. One way to avoid this is to start saving a down payment for a house when you decide it is something that you will be doing in the near or distant future. It can be difficult to set aside money, especially when you are on a tight budget as most Americans are. But saving up a sizable down payment doesn’t have to a prevent you from achieving your dream of being a home owner. Here are four easy things you can do to help you save up a payment.
Set Up a Separate Account
If you are going to start saving up for a down payment on a house, you should have a separate bank account that is designated for nothing other than your down payment money. If you put your down payment money in your normal checking or savings account, it’s too easy and tempting to spend that money on bills and other things. It is also difficult to keep track of how much you have saved for your down payment. Make it a priority to set up a different account and never touch the money that is in there. You can jump start this account by depositing your income tax return, if you are receiving one. Just be sure to keep good record of your deposits as underwriting may require this information at some point.
Cut Out Some Large Bills
When you save for a down payment for a house, you will probably need to make some sacrifices. For the first month or two of your saving, make a log of how much you spend on expenses and activities. How much money do you spend each month going out to eat? Do you have any luxuries that you can cut out while you are saving? Go through your records and see where you can make cuts. Then reduce those expenses and put the money saved into your down payment account.
Set Up an Automatic Contribution
Many banks these days have a service where they will take out a certain amount of money each month and transfer it to a savings account automatically. If you have your paychecks deposited directly, you can even set up a system where a certain amount of money will be deducted from your paycheck and deposited into an account, as well. You may notice the financial shortfall for the first couple months, but after awhile, you won’t even notice having less money, and you will be building your down payment account quickly.
Deposit Any Lump Sums
Do you ever receive large sums of money throughout the year? These sums can be Christmas bonuses, tax returns and other sums of money. You may be tempted to spend this money on something fun, but deposit that money into the account you set up to save a down payment for a house instead.
With all of these ways to save up for a down payment on a house, you’ll see your savings increase faster than you may expect. It’s a great feeling to put a sizable down payment on a home. Besides, all of the sacrifices you make in order to achieve your dream of home ownership will definitely be worth it in the end.
Keep in mind that there are some mortgage programs available that require little to no money down. If you want to know more about these programs, you can submit a question by clicking here.
Also, when you are gearing up towards purchasing a home, or even refinancing; you will want to make sure your credit is where it needs to be. In some cases, this can be a longer process than saving for a down payment! If you’re not sure where your credit stands, you can fill out a short application to find out and also to see if you pre-qualify for a mortgage. A pre qualification letter is a great tool to have in hand when you begin house hunting anyway.
It’s truly about thinking ahead and being prepared when it comes to purchasing a home.