For many first-time home buyers, the idea of a 20% down payment is terrifying. It’s one of the biggest obstacles to homeownership. Maybe you want to own a home someday, but the thought of saving up thousands of dollars for a home purchase has deterred you from seriously considering it.
Believe it or not, it is possible to save enough money for a down payment and make your dreams of homeownership a reality. Here are just a few of the ways that you can start saving.
1. Track How Much You Spend Now
When saving for your first home, you’ll need to stick to a budget. Awareness of how much you spend can help you figure out where you can cut your costs. Consumer.gov outlines a few tips for creating a budget here.
2. Determine What You Can Afford
Even if you don’t plan to buy a home for a few years, figuring out how much you can afford for your home will make your savings goal more concrete. Don’t forget to include taxes, insurance, utilities, and maintenance in your monthly payment calculations.
3. Start Small
Start saving for your down payment and other homeownership costs as soon as you can. The earlier you start, the less you will have to cut your spending and the more time you’ll have to reach your goal.
4. Shop Around for Other Loans
If you find that a 20% down payment is unrealistic, you can opt for a mortgage that offers lower down payment options. FHA loans, for instance, offer 3.5% down, and VA loans offer no money down.
Make sure to do your research. If you put less than 20% down on a home, you will have to purchase private mortgage insurance. We can talk more in depth about home financing options available to you.
Many people find it’s easier to save money if it’s automatically transferred into a savings account every month. Check to see if your bank offers automatic funds transfer services, or ask if your employer can direct a portion of your paycheck into your savings account.
6. Create a Separate Savings Account
Establishing a savings account specifically for your down payment and homeownership costs is another great way to set aside money for a home. If you decide to automatically transfer money to savings, creating a separate account may make it even easier.