Best Ways to Save Money for a House Down Payment
As 2015 wears on, we see a lot of positive trends with unemployment rates and credit scores, but income seems to lag behind rising house values.
If that's you, I want to give you some encouragement and sound strategy for saving the funds needed to buy a home and share some info about loan products for those that can't afford a traditional down payment.
Many mistakenly believe they have to have 10-20 percent down, and simply not true, but I'll get to that momentarily. Let's start with strategies for saving money.
To Save Money for a Down Payment:
Budget: First off, sad to say, but most Americans are poor at managing money. One of the first things you should accomplish is an actual budget and stick to it. Automatic bill paying can be your best friend here, saving you late payments and extra fees on a variety of accounts. You'll need to be realistic about your spending habits, including some money for fun and special things. How much fun money do you need a month, etc. Do you spend $3.50 a day at Starbucks? That's over a hundred dollars a month. Keep track and you'll be surprised at where the money goes.
Look but Don't Touch: Open a savings account strictly for your housing fund. Have whatever you have left saved from your budget auto-deposited from your regular checking to this special savings account. Keeping it separate and watching it grow will not only encourage you further, but keep you on track. If you have direct deposit, you could instead choose to have a percentage or dollar amount contributed each payday to this special savings account.
Downsizing for Upsizing: If you are renting and can afford a smaller and less expensive space, downsizing for a year can save a tremendous amount of money. It may feel a bit like going backward but the results are well worth it if you're struggling to save for a down payment. Dropping from a 3 bedroom apartment to a two bedroom, or a two bedroom to a one bedroom (if you don't have kids) can save you 20 or 30 percent in most cases.
Balance Your Retirement Savings: Know what your company match is, and don't exceed that until after you've bought a home. Buying a home improves credit, lowers insurance and provides a host of other financial benefits.
Pare and Spare: Buying the store brand vs. your favorite brand can save a lot at the grocery store, and holding off on a car purchase simply because the old one doesn't look brand new can save you large. Make do with less. When it comes to eating out, spare the pricey cocktails and have a cool drink at home for some festivity. The idea of putting off that fancy vacation may not sit well, but if your goal is homeownership, try taking a day off and making a three-day weekend with some local, less expensive excursions.
Keep your Sanity and Ask for Support: You'll need to treat yourself once in a while, again, figure out what you need for a little fun money. Just remember to "pare and spare" what you can. Nothing throws you off track with your goals like feeling discouraged or unhappy.
How Much Money do I Need to Buy a Home?
Now, this is the part that many first time buyers don't realize, but there are some wonderful loan products out there ranging from very low down payments, like 2.5 - 3.5 percent down to no money down at all. Add to that state and county programs offering down payment assistance and buyer grants (even if you've bought a home before).
Examine these no-down and low down payment mortgage products.
In addition, you're going to need to keep your credit score and credit profile up-to-snuff, I suggest taking a look at protecting your credit and how to get the best score.
You may also be wondering what the best type of home for you to pursue is, i.e. a foreclosure, traditional sale, HUD home, etc.