Six Practical Ways to Save for a Down Payment
Becoming a homeowner is one of life’s most exciting adventures, although the path to get there can be daunting - especially if you’re not sure where to start. The good news is you’ve come to the right place. This article will provide six practical ways to navigate the first step – which is saving for the down payment.When considering buying a home, the down payment you put upfront plays a major role in your future housing expenses. Typically, lenders require anywhere between 5 and 20 percent of a home’s purchase value as down payment, but the more money you can put down, the better off you’ll be. By responsibly managing your spending and allocating extra cash to a savings account, you will be on the right track towards saving for your home purchase.
Breaking down the process into manageable fragments can make it easier to achieve your goal. Here are six practical ways to assist you in saving for a down payment:
- Determine the down payment. How much money you'll need to save for a down payment depends on the type of loan you choose and the home's cost. According to Realtor.com, the average down payment in 2024 was 13.6%, giving many homebuyers the flexibility to make the leap. A larger down payment may help to lower your monthly mortgage cost but may take you longer to save. Creating a budget and calculating how much you can realistically save each month will help you to make the right decision.
- Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. Keeping these savings separate can help you stay organized and motivated as you watch the numbers grow.
- Shop around to reduce major monthly expenses. It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
- Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going, identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.
- Research state and local home-buying programs. Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.
- Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.