A down payment on a home can be a huge amount of cash. Saving up the money may feel like an overwhelming undertaking, but there are ways to make the process easier.
Here are six tips on how to save money for a house down payment.
1. Figure Out How Much You Already Have Saved
A great place to start is going over your current savings and investments. Add up the money in your savings and investment accounts, and then subtract the funds that you’re going to use for other purposes, like different financial goals and moving costs. You’ll be able to estimate how much you could currently put toward a down payment.
An important note: Be sure to factor in an emergency savings cushion, so you can cover any unexpected costs. It’s advisable to have three to six months’ worth of expenses in your emergency fund.
2. Set a Down Payment Goal
To calculate how much you still need to save, you’ll have to set a goal for the down payment you’re planning to make. Putting at least 20% down has plenty of benefits — from lower interest rates to money saved on private mortgage insurance — but it’s not the right goal for everyone. At minimum, you’ll likely have to put at least 3% down.
Also important: In addition to your down payment, don’t forget about closing costs.
3. Reduce the Amount of Debt You Have
A helpful way to boost the amount you’re saving every month is to address your outstanding debts first. The money that’s going toward paying off your student loan debt or credit card balances could be feeding into your savings instead. Of course, this is easier said than done — but the benefits can be worth the effort.
Reducing your total debt will also help lower your debt-to-income ratio, which could improve your odds of getting approved for a mortgage. Lenders check your DTI ratio to determine whether you can afford to repay the loan.
4. Find Ways To Earn More Income
One of the best ways to save money for a house is to increase your income. Earning more can help you save for your down payment a whole lot faster, and has the bonus effect of improving your DTI ratio.
At the same time, it’s not always easy to secure a pay bump at work. To build your case, document what you’ve contributed to your employer so far, and outline the ways in which your skills and qualifications have grown since you’ve been on the job. Doing research on salary ranges for your role can also help if you’re currently getting paid below market compensation.
Another way to save for a house is finding side income streams. You could try selling some of your stuff on an online marketplace, driving for a rideshare or delivery app in your free time, or drumming up some freelance work in your areas of expertise.
5. Cut Down on Discretionary Spending
Saving for a down payment may require cutting back in certain areas, such as canceling subscription services you’re not using or getting into the habit of cooking at home. Finding small ways to reduce your expenses can add up and make a big difference.
And these changes don’t have to be permanent. Once you reach your down payment goal, you can reward yourself for a job well done.
6. Look Into Down Payment Assistance Programs
It might feel like saving for a down payment is going to take forever. However, if you’re qualified, you might be able to get some help. There are special programs available to help people come up with the money for a down payment. Check out the local homebuying programs in your state. Aside from down payment assistance programs, you could also check if you’re qualified for a mortgage with low down payment requirements.