Becoming a homeowner is one of the biggest milestones you’ll achieve in your life. However, before you can do this, you’ll need to start saving for a down payment. Since down payments are usually anywhere between 3-20% of a home’s value, this isn’t an easy task. It can often get overwhelming, especially when you’re dealing with various other expenses. Rent, auto loans, transport, and utilities are all priorities you need to spend on, making saving seem impossible. According to the National Association of Realtors (NAR), 11% of homebuyers say that saving money for a down payment is the most difficult part of the homebuying process.
However, no matter how difficult it seems, it is possible to start saving for a down payment. Breaking this down into smaller moves is a sure-fire way to accomplish your goal. This article gets into the nitty-gritty of how to save for a down payment on a home, especially if you’re a first-time homebuyer. Keep on reading for Robert DeFalco Realty’s top tips.
Tips for Saving for a Down Payment
Saving for a down payment on a house is no easy task. While it may take some time to accomplish, the following tips are sure to help you along the way. Saving for a down payment is more attainable than you might think, especially when you’re following a set plan.
Figure Out the Amount You Need
As a first-time homebuyer, you may not know how much you require when saving for a down payment. Many assume that down payments are always 20% of the home’s value. However, this isn’t always the case. Some down payments may be 12% while others are as low as 6% or even 3%. Before you can start saving for a down payment, you must know how much you need to save. This way, you can come up with a plan and strategize accordingly. Discuss your options with professionals so you know how much you need to save.
Pay off Credit Card or Student Debt
This may seem counterproductive. Why should you pay off your debts when you’re trying to save? This is because debt makes saving more difficult. This is especially true if you have high-interest debts. In addition to the cost of interest, debts can also make it harder to qualify for loans. According to the National Association of Realtors (NAR), 47% of buyers say that student loans delayed saving for a down payment. 36% also pointed to credit card debt. Because of this, it’s easier to pay off high-interest debt before saving for a down payment.
Save in the Right Type of Account
It’s not enough to start saving for a down payment. You also need to put your money in the right type of account. Instead of dabbling in the stock market (which can be volatile), consider the following options:
Certificates of Deposit
Long-term certificates of deposit aren’t suitable for this type of short-term saving. In this case, it’s best to choose certificates of deposit that will mature at the same time you expect to have your total amount saved. It’s important to note that the money is inaccessible until the certificates mature. Withdrawals will result in penalties.
High-Yield Savings Accounts
This is a safe option for storing money. However, it’s not an accurate term because the yield isn’t always high. However, even with lower savings rate, these accounts can be useful. They’re easy to access and liquidity is not a problem. Check between banks and credit unions to find the best possible rate and start saving for a down payment.
Money Market Accounts
Money market accounts and funds are also a good option for short-term savings. Shop around to find the best possible return before making a final decision.
Technology is used for everything. It can also be used to automate savings. By putting your savings on autopilot, you will ensure that your weekly or monthly savings are consistent. Automation does this without you having to think about it. Because the process is automated with online savings accounts or recurring transfers, you don’t risk forgetting to save.
Monitor Spending to Cut Down Expenses
You can save more by spending less. However, when you’re saving money for a down payment, this can seem impossible. Keep an eye on your spending and monitor your expenses to see where your money is going. Once you track your discretionary income, you will be able to determine where you can cut back. For example, you could discover that you’re spending too much on eating out. Cutting back on this and cooking at home can reduce the expense and help you save more.
You can also shop around to lower your monthly expenses. For example, switching to more affordable cable providers, health insurance carriers, and cell phone plans can help you save hundreds of dollars. This can help you achieve your goal of saving money for a down payment faster.
Robert DeFalco Realty Can Help You Buy a Home
Saving for a down payment isn’t easy. However, if you devise a comprehensive plan and follow a roadmap, it is certainly possible. With time and useful saving strategies, you’ll save up enough money for your down payment. When purchasing a home, you’ll also need a buyer’s agent. This is where Robert DeFalco Realty comes in. We can help you purchase your dream home. Our experienced realtor can guide you through the entire home buying process and be with you every step of the way. Check out our various offices across New York, or contact us here for more information.