If you are considering the thought of buying a new home, or are actually ready, you need to be prepared to discuss a down payment. Don’t let the numbers overwhelm you – in the long term, your down payment can save you loads of money, helping you secure a better interest rate and saving you thousands – in some cases hundreds of thousands – in interest over the life of your loan.
Here are a few tips to help you get started and save, save, save!
1. Open a Down Payment Savings Account
Open a high-interest rate savings account for your down payment – and only for your down payment. Any and all extra money throughout the year (bonus checks, gifts, tax refunds, etc.) should go directly into this account. Make it a rule to never touch this account. Consider making it very hard to withdraw money, like opening this account at a different bank than the rest of your accounts, or not setting it up for online banking, so you would actually have to go to the bank in order to withdraw.
2. Set a Goal and Work Backwards
Determine how much you want to save, and how long it will take you. There are many online calculators to help you determine home prices and how much you can afford. Once you know how much you need to save, calculate backward and commit to a minimum amount you’ll save each month. Even if it will take you a couple years – it will be helpful to have the end in sight and watch that account grow!
3. Cash is King
By only carrying cash, and avoiding credit cards, you will be forced to scrutinize every purchase.Set a weekly budget amount – I like to call it my “Miscellaneous Fund” – and take out that much from the ATM each week. If you budget yourself $40 each week and only carry the $40 and no credit/debit cards, you will be more likely to stick within those limits.
3. You Need a Budget
In order to save well, you have to spend well, and that requires knowing where all your money is going. Giving every dollar and job and tracking where each and every dollar is spent is illuminating, empowering and at times, humbling. But it will help you stay motivated, save more and feel in control. There are many online tools to make it easy to get started.
4. Automate your Savings Plan
If it isn’t there, you can’t spend it, so automate your monthly savings deposit first thing each month before the money runs out and is spent elsewhere.
5. Consolidate and Refinance Debt
You can refinance just about any debt, from credit cards to car loans. Whether you are transferring balances or taking advantage of better interest rates with a new lender, refinancing your debt can save you big bucks in the long run.
6. Do your Homework
If you are willing to take the time, you can save a lot of money by finding less expensive alternatives for many of your monthly expenses such as car insurance, renters insurance, health insurance, cable, Internet, etc. It is worth a little research to see that savings account grow more quickly!
7. Pick up Part-Time Work
Getting a side job is a great way to generate extra income that you can save exclusively for your down payment. Consider freelancing in your field outside of work; you may be surprised how much you can boost your earnings with a few hours of part-time work each week.
8. Garage Sale!
Earn some extra cash and clean out your garage at the same time – win-win! Consider listing larger items on Craigslist or eBay to get bigger returns. Here are some tips on how to make the big bucks!
9. Know the Numbers
Even if you are still in the throes of saving – or even just beginning – far from having saved your down payment, find out what your credit score is and make sure you are intentional about building good credit throughout this process. Obviously, paying your bills on time is important, but in the lending world, it is your debt-to-income ratio that is just as most important. Comparing how much you earn with your monthly debt obligations and housing expenses calculate this ratio. You want to have as much information as possible, as early as possible so you have time to address any potential issues. If you find reasons for concern, there are plenty of resources out there to help you improve your score, but be careful, there are also a lot of scams. This isn’t a quick process, so plan early.
The professionals at De Young Mortgage are available to discuss these tips and additional ways to save for your down payment as well as special financing programs, pre-qualifying and receiving a free credit score, how to purchase a home after a foreclosure or short sale, how much you can afford, and more! With over 25 years in the lending industry, these experts will use their expertise to help you choose the best program to suit your individual needs. Good luck saving!
AUTHOR: Ernie Escobedo, De Young Properties