SAVING FOR A DOWNPAYMENT
HOW MUCH, HOW TO DO IT & WHERE TO PUT IT.
DOING THE MATH
The first step is to estimate roughly how much you need to save.
A common myth is that you need 20% down. While putting 20% down will save you money in the long run (because you won't have to pay additional mortgage insurance), it can take awhile to hit that goal. Many lenders offer loans with much lower down payments. Depending on your credit score, you can purchase a home with as 3-5% down. And if you're a veteran, you can get a 0% down mortgage.
Here's a quick look at the numbers:
Look at how much more managable that $13,500 is already.
Obviously, your specific situation will vary depending on what area you're looking to buy in, your credit score, your income, your debt, etc. There are eleventyfive bajillion mortgage calculators out there that you can play around with to get an idea of the basics and start a savings plan. *Also, keep in mind that you'll need to account for additional expenses such as closing costs.
So, what next?
01. SET A BUDGET
Ugh, obviously I started with the most un-fun one. It's easy to put off making a budget because it's SUPER boring. BUT, it's so important to have a realistic budget and to know where your money is going every month. It's unlikely that you're going to find a down payment in your couch cushions - you're going to have to scale back on some non-essentials. But if you have a plan in place, it will be a lot easier to form those habits.
Plus, there are TONS of apps out there that will do most of the work for you.
Check out Investopedia's Top Suggestions for the best budget apps of 2023.
Once you've gotten a handle on your budget & how much you can comfortably save per month, begin to think of your home savings as an essential expense, just like rent & loan payments.
02. SPEND (& SAVE) SMARTER
SET UP TO SAVE SIMPLY
- Automate - schedule an automatic transfer to your savings account each paycheck. If you don't see it, you won't spend it!
- Cash Rewards - use a cash-back credit card for purchases like groceries & gas. Put those cash rewards right into your home savings account. *And make sure to pay off the balance each month to maintain your credit.
- Keep The Change - A lot of banks offer a spare change program where they round up purchases to the nearest dollar. Every penny counts!
- Stash Windfalls - maybe you got a bonus or a raise or even a tax refund - put it right into the home savings account!
REDUCE YOUR SPENDING WHERE YOU CAN
- Choose a staycation instead of a big trip. We live in an amazing area - there's SO much to do without hopping on a plane. Take advantage of it.
- Cut back on little luxuries - do you need ALL the streaming services? Maybe you can work out at home and sacrifice the gym membership. Or how about fancy coffee? I love this nerdtastic article on how much you can save if you make your own lattes.
- Practice cooking at home rather than opting for takeout. By the time you buy your house, you'll be able to put that new kitchen to good use!
- Resist the urge to impulse buy - unsubscribe from sale emails (or use a (free) service like unroll.me to keep them out of your inbox).
03. GO A LITTLE MORE EXTREME
There are some even bigger ways to save faster - but they're not for everyone!
- MOVE BACK HOME
I knowwwww... You've been on your own, you have your whole freedom vibe going on, but imagine putting your monthly rent in a savings account. It's just temporary. (And bonus - you can sell your furniture for even more cash!). If moving home isn't an option, maybe you can downsize to a cheaper rental or take on a roommate. Or maybe it's time for you and your significant other to move in together? - GET MARRIED!
Speaking of your significant other..... GET HITCHED! OK, OK, don't get married just because of this tip - do it because you found a partner that you love and want to make it official. But if you happen to be the marrying kind, you can use your wedding registry to raise funds for your down payment! It's hard to register for gifts when you're a renter anyway. There are several registry sites you can use to crowdsource cash such as: Feather the Nest, Honeyfund, and Zola. Just check the terms regarding fees. - GET A SIDE HUSTLE
From rideshare driving to freelancing - there are unlimited opportunities in the gig economy - check out Fiverr, Upwork and TaskRabbit for ideas. Look for something with low overhead. Or ask for a raise at work. - TAP INTO YOUR 401K
This one is controversial. You can technically take a withdrawal or a loan on some retirement accounts (401Ks and IRAs). You'll have to pay taxes on the disbursement and possibly early withdrawal penalties. You should speak to a financial advisor to review the pros/cons of using retirement savings and the particulars of the terms of your plan.
LOOK AT YOU, MAKING MONEY MOVES...
WANNA KNOW WHERE SHOULD YOU PUT ALL THAT CASH?
HINT: IT'S NOT A PIGGY BANK.
First & foremost, now is not the time to give crypto a try. Put that money someplace slow & steady. It would be the WORST if you decided to put it all in that "sure thing" investment & poof, one weird news cycle and you're looking at a whole lot of nothing.... Get those funds into one of the following types of accounts:
- A HIGH-YIELD SAVINGS ACCOUNT
"High Yield" is probably better thought of as a "Tiny Yield" at 0.01%, but it's more than you'd get if your money was under your mattress. - CDs
CDs (certificates of deposit) are a type of savings account with a fixed term & a higher interest rate. You typically need a lump sum to open one, and you won't be able to touch that money without penalty until the term is up. You can get a short term CD (as few as 3 months) with a lower APY (but higher than a High-Yield Savings).
Don't expect to make millions off of your savings - the most important thing is to keep it out of sight/out of mind and safe.
Hi I'm Meg & I'm not your mother's REALTOR.
As a former wedding planner, I have a unique skill set that I use to help home buyers navigate both the logistics and the emotions of buying a home. I don't think of myself as a salesperson - I'm your real estate coach, your logistical coordinator, your house hunting BFF, and your cheerleader.
I don't want to sell you a house, I want to help you manifest homeownership.
MEGHAN RAMSAY
contact
142 ROUTE 23 NORTH
POMPTON PLAINS, NJ 07444
973-686-1500 x259 (o)
201-892-4866 (m)
homes@megramsay.com
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