It can take several years to save for a down payment. And there are benefits of having a higher down payment such as access to different loan programs, better interest rates, higher approval amount, and lower monthly payments. Often sacrifices must be made, but in the long run you can get that home. Here are 5 money-saving ways to consider when building funds for a down payment.
1. Direct deposit into a different savings account
Many of us lack the discipline to save when our money is easily accessible. Making the one time effort of setting up direct deposit to a separate savings account where a portion of your paycheck goes into allows for this discipline to happen easier. Don’t touch the these savings unless of an emergency. And no, a morning coffee is not an emergency.
2. Go travel! … just not out of town
Do affordable ‘staycations’ this year. Vacations with flights, hotels, and restaurants are mighty expensive. It also doesn’t help that people tend to go over budget on vacations. Because you know, after all, we deserve it right. Making this sacrifice is a big one for many. But just think how many friends and relatives can come visit you in your new home.
3. Lower (or get rid of) your expenses
Those monthly bills add up. TV, internet, home phone, cell phone, car insurance, subscriptions…etc. Look at your expenses and decide which ones you can do without. Look into lowering them if you must have them. Calling around for a new insurance rate can save hundreds a month. Cancelling or finding cheaper alternatives to cabel can save over a thousand per year. Cell phone plans continue to get more and more affordable as time goes on. If it has been a few years on a cell phone plan, call your provider to see if there are now cheaper alternatives. With the extra cash you can put that right into the savings account.
4. Get rid of that credit card debt
I could write a book on this alone. Don’t fall for the trap that you need to be paying interest on your credit cards in order to get a good credit score. This is a fallacy. The killer interest rates credit card companies charge will hinder your efforts of saving for a down payment. Pay those credit cards off in full every month. Ideally, begin with the card that has the highest interest rate and pay it off; so on and so forth.
5. Do you have a rich uncle?
Down payments can be gifted from relatives. Whether it be parents, grandparents, aunts, uncles, brothers, sisters…etc. Certain types of loans have different rules. Often a simple letter stating that the money is indeed a gift, with no IOU attached to it, will be required. Your bank can walk you through the rules and steps for gifts as a down payment. So next time you are at the family BBQ, remind your relatives about all the birthdays they missed.
Avoid a Costly Mortgage
Be sure not to waste your efforts of saving for your down payment by getting a bad mortgage. Ultimately, the largest savings come from getting a good mortgage with a good interest rate and fees. Many home buyers are overcharged for their mortgages without knowing it. Don’t be one of them. Make sure your loan is fair by getting it reviewed before you “sign your life away.”