How to Save for a Down Payment on a Mortgage
Whether you are a first-time homebuyer, upsizing your current home, or even buying a vacation home, it’s important to have a good down payment prior to taking out your mortgage loan. Generally, the bigger the down payment, the smaller the mortgage (unless you want to save some for home improvements.)
A down payment helps in a lot of ways, it lets the lender know you are a better credit risk, it can help lower your interest rate. If it is 20% or more, it can even help you avoid private mortgage insurance. No matter how you look at it, saving for a down payment is a good idea. But saving is not easy. Here are a few creative ideas to get started filling that piggy bank.
8 Ways to Save for a Down Payment
1. Put a certain amount in savings each month.
Have your bank set up a “mortgage down payment” savings account. Then either set an automatic payment to that account each month, or get in the habit of paying yourself a fixed amount each month. Before you know it, you’ll have a nice savings balance.
2. Sell your stuff.
We all have a few things we no longer want or need. If you have a collection or items of value, why not sell them? If you have antiques or jewelry they might be worth enough for a down payment alone. Even if it’s just a few things you sell at the neighborhood garage sale, any extra cash can be put toward a down payment. Every little bit adds up.
3. Reduce your cost of living.
If you are renting a fancy downtown apartment, but have your sights set on homeownership, maybe move to a cheaper place for a year to save money. You could even have a roommate to split some of the costs.
4. Lower your monthly expenses.
Look at all of your monthly bills to see if you can cut costs somewhere. You could consider dropping cable television, or your gym membership for a while.
5. Make lifestyle changes.
The average person can find savings up to $100 or more each month just by making small changes. Skip the fancy coffee shop a few days a week, pack a lunch instead of eating out, don’t splurge on those new shoes. Make yourself a budget and stick to it. You’ll be surprised how much extra you can save.
6. Ask for cash gifts.
If you are planning a wedding ask for cash instead of registering for a new toaster. The same goes for birthdays, anniversaries, and more. Explain to friends and family that you are focused on buying a new home and would love if they would give you cash in lieu of a gift.
7. Find an additional source of income.
If you’ve got extra time you can take on a part-time job just about anywhere. If you have creative talents you could sell crafts, sing in a band, offer handyman services, shovel sidewalks/mow lawns, organize parties—the sky is the limit to what you can do to earn a few extra dollars to save.
8. Get down payment assistance.
There are certain limits to how much help you can have with your down payment, but sometimes parents and grandparents are a wonderful source. They can give you a gift that will help you come up with just enough for the home of your dreams.