If you’re saving for a down payment to buy your first home, it may seem overwhelming. But the trick is to break it down into small, actionable steps. Here are a few things you need to know:
Know how much you need
Most of the time, lenders will want to see at least 20% as a down payment. However, there are many options if you’d like to pay less and simply get your foot in the door. You will need to pay for mortgage insurance which will protect your lender in the event that you default on your loan.
Realistically, the more you can save as a down payment, the lower your interest rate is likely to be, and the better deal you’ll get. However, you do have some options like the FHA 3.5% down payment mortgages, GSE-backed loans, and USDA loans.
Once you know what your down payment goal is, it’s time to start saving. Set up automatic transfers as soon as you get paid, so you won’t even see your money before it goes to your savings account. Anytime you get a bonus, raise, or money back on your tax, stick it straight into your saving account. Use credit cards that give you cash back on your purchases and transfer that money to your savings, and avoid getting into any more debt- refinance your student loans and avoid getting a new car.
Once you’ve set your saving goal and budget and you’re working on saving, it can be difficult to know if you’re staying on track. That’s why you should check out this top money manager app or a weekly expense tracker. If you find that you travel often, check out the best travel expense tracker. Keeping track of the money you’re spending will make a massive difference when it comes to saving for that down payment.
Once you’ve got a plan for your down payment savings, you’ll need to figure out where you’ll put the cash. While you may think it’s a good idea to invest it, unless you’re not planning to buy a home for eight to ten years, this isn’t a good plan. The stock market isn’t the best choice for short-term savings, and all it takes is one bad downturn for a significant setback.
Instead, look into a high yield savings account. The best ones can be found online since they don’t have the expenses associated with brick-and-mortar banks. That means you can get a much better interest rate.
Another option? Money market accounts and funds. Both of these are good options if you’re saving over the short-term.
Are you planning to save for a house deposit next year? What are your top saving tips?