Your home is likely the biggest purchase you will ever make. In fact, your home is such a big purchase that there is a good chance that you will need to borrow money to complete the transaction.
Before giving you money, though, the lender probably wants to know that you have a stake in the transaction. There’s a good chance that you will need to provide at least some money down when you buy. If you get an FHA loan, you can pay as little as 3.5% down. Other loans may require 5% or 10% down, and maybe even 20% down.
No matter how much you put down, it helps to plan ahead and save up for your down payment. Here are four tips that will help you save up for a down payment:
- Be Realistic About Your Time Frame
Look at your time frame and be realistic about when you can save up the money. If you want to save up a 20% down payment, you might need to plan to save up for a little longer. If you want the FHA loan, though, you probably don’t need to save up for as long. However, you do need to be ready to pay for mortgage insurance if you don’t have a 20% down payment.
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Think about how long it will likely to take to save up what you need. This will give you an idea of what to expect as you save up for a down payment.
- Break It Down Into Manageable Chunks
Next, break down your goal into manageable chunks, based on your time frame. If you want to save up $12,000 for a down payment in the next two years, you need to save $500 per month. If that seems like a lot to you, you can still break it down into smaller amounts, like $125 per week, or $25 Monday through Friday four weeks of the month. Those smaller numbers can help you feel better motivated to move forward.
- Open a High-Yield Savings Account
Use a high-yield savings account for your down payment. Automatically transfer money from your regular account into the high-yield account for your down payment. Whether you move the money each week or each month, keeping it in a separate high-yield account can make a lot of sense. Even though a high-yield savings account isn’t likely to pay a lot of interest, it’s still better than nothing, and your money will hopefully out of sight and out of mind, building up toward your desired down payment amount.
- Prioritize Saving Up for a Down Payment
How much of a priority is it for you to save up for a down payment? Take a look at your spending. If you can’t find the amount you need each month to put toward your down payment within your desired time frame, you might need to adjust your priorities. Could you cut out some of the unnecessary spending you do? You might be paying for things you don’t use, or buying stuff that doesn’t add value to your life. Review your spending and see if there are things you can cut out so you can free up more money to put toward your down payment.
Put your down payment first in your budget, and you will be able to better accomplish what you want with your money. If you are interested in buying a home, schedule in your down payment before paying for your wants, and you might be able to turbocharge your savings and get that down payment sooner than expected.