It’s no secret that the cost of rent is on this rise- everywhere.
If you find yourself cringing every time you send out that monthly rent check, chances are the thought of buying a home has crossed your mind at least once. So what’s stopping you? The biggest hurdle people face is the notion that it takes a lot of money to buy a home. Yes, you need some money to buy, but it may not be as much as you think and saving for your down payment may not be as hard as you think.
Here are five easy tips for future home buyers on how to save for a house down payment.
Trim Your Expenses
Take a hard look at everything that comes out of your bank account. It may be scaling back on the satellite package or doing without a couple of lattes every week. It all adds up. Preparing to purchase a home is the time to pare down on expenses and trim down your outgoing costs. Another useful tidbit is to scan through your bank and credit card statements for those small fees that come out every month including recurring charges like in-app purchases.
Windfalls: Tax Refunds, Bonuses, Pay Raises
These are by far the fastest ways to whittle down that savings goal. Financial windfalls such as these are the best because typically it’s money that’s icing on the cake. Setting aside cash “bonuses” like these will help increase your savings at a faster rate.
With any pay increase, take the extra amount and move it to your savings, especially if you’re already budgeted with your current pay. If you usually get a nice tax refund every year, it’s easy to go all out and splurge on purchases or eating out for a month but keeping the bigger picture in mind will keep you focused. Plus, the more money you have able to use for your loan down payment, the less you have to borrow.
Out of Sight, Out of Mind
Setting up a savings account is a must if you plan on achieving your savings goal. If it’s specifically dedicated to your down payment, it will help mentally to keep from co-mingling with cash in your checking account. You may already have a savings account and you can use too. For most people, having the funds in a separate account entirely can help you monitor your progress and keep your eye on the prize.
Pay Yourself First
Just like your rent check, car payment or cell phone bill make it a priority to pay yourself first versus waiting until everything else is paid. The beauty is that most banks offer automatic savings “plans” that can move money to your savings account on days you want it moved. When you start treating your savings goal like another bill, it makes it easier to get into the habit of setting money aside right away versus sticking it out until the end of the pay period.
Utilizing Retirement Accounts
If you have an IRA (Individual Retirement Account), you may be eligible cash out up to $10,000 for a down payment on a home. There aren’t many situations that would allow you to make an early withdrawal from your retirement accounts without being penalized by taxes but buying a home is one of them. Be sure to check to see what type of retirement accounts you have and reach out to the company that services the account for more information.
Any time taxes are involved, things can get tricky so it’s best to consult your tax professional beforehand to be sure you’re in the clear and it makes financial sense.
How Much Should You Be Saving for a House?
One of the biggest misconceptions I hear about down payment requirements, particularly from first-time home buyers, is the idea you need a large down payment to buy a house. That is just simply not the case. The reality is many home purchases occur with less than 10% down. For first time buyers in Idaho that number is closer to 5%, nationally it's very much the same. There are many programs that allow for as little as 3.5% down or none at all.
Meeting with a trusted real estate agent or loan specialist before you start the home buying process will help you set a clear savings goal.
You Can Do It, We Can Help
Yes, you read that right. A buyer’s agent doesn’t just help you find a home to purchase. We also help home buyers put the wheels in motion before we even start the home search. Whether it’s tips on saving for a down payment, mortgage strategies or getting you in touch with a reputable home loan specialist- we are a one-stop resource for it all.