It’s no secret that buying a home is a huge financial commitment. A down payment alone can be tens of thousands of dollars, and that’s not even counting the closing costs, monthly mortgage payments, and other associated expenses.
With the average price of a home hitting $405,000 in 2022, even a 3% down payment for a first-time conventional loan means you would need to cough up $12,150 just for the down payment alone. Assuming 2% in closing costs, you would need to have roughly $20,000 to buy a home!
Here are some down payment percentages you should keep in mind:
Lowest down payment loans:
FHA – 3.5% Down
Conventional Loan (For first-time home buyers) – 3% Down
Conventional Loan (for repeat buyers) – 5% Down
No Down Payment Programs:
VA loan – 0% Down
USDA Loan – 0% Down
Don’t qualify for a VA or USDA Loan? It’s OK, don’t let that scare you away from homeownership – there are plenty of ways to save up for a down payment. Here are four tips to get you started:
Track your expenses and set up a budget
Setting a budget is the first step to saving for a down payment on a house. There are numerous ways to set a budget, but the most important thing is to be realistic about your income and expenses.
Begin by tracking your spending for one month to get an accurate picture of where your money goes. Then, figure out how much you can realistically save each month. Once you have an idea of your monthly savings goal, you can start looking for ways to cut expenses so that you can reach your goal more quickly. For example, you may want to give up dining out or limit your entertainment budget.
By setting a budget and making sacrifices, you can save up for a down payment on the home of your dreams. Once your budget is set, make sure you are automatically transferring a fixed percentage of your income into savings. Once you have a solid savings plan in place, you can start looking for ways to boost your down payment fund. One option is to get a side hustle or take on some freelance work. You can also look for creative ways to cut costs so that you can redirect more money towards your down payment goal.
Set up a dedicated savings account
Setting up a dedicated savings account specifically for your down payment fund is one of the best things you can do. Then, you can create a budget and make regular deposits into the account. To stay motivated, it can help to set up a savings plan with specific milestones. For example, you may want to aim to save $20,000 in two years.
Break up your goal into amounts you can handle. For instance, $20,000 may seem like a big amount of money but it’s the same as $833 every single month!
Automate your finances
One of the best ways to save money is to automate your finances so that you’re less likely to spend it. When it comes to saving for a down payment, you can automate your savings transfers from your checking account into your dedicated down payment savings account. This way, you’ll never even see the money and it will start to add up.
Finally, be sure to take advantage of any employer matching programs or other incentives that could help you reach your goal even faster. By automating your finances, you can make the process of saving for a down payment much simpler and less stressful.
Get a side hustle
Be honest with yourself – if your full-time income is not getting you to that down payment savings goal as quickly as you’d like, then picking up a side hustle is the way to go. A side hustle is a small business or other activity that generates extra income.
Side hustles are a great way to make some extra money, and there are plenty of options to suit every interest and skill set. For those who love interacting with people, dog walking or pet sitting can be a great way to earn some extra cash. If you’re a talented baker, starting a small home-based business making and selling cakes and other baked goods can be a delicious way to make some extra money. Or, for those who enjoy being outdoors, starting a gardening or landscaping business can be a great way to make use of your green thumb.
Not so much on the creative side? Consider driving Uber or Lyft for a few months. We’ve had many clients who went from just having $1,000 in savings for a down payment to more than $15,000 in 10 months driving on the side. Whatever your interests may be, there’s sure to be a side hustle that’s perfect for you.
This extra income can be used to save for a down payment, as well as to cover other costs associated with homeownership. Having a side hustle can be a great way to speed up the process of buying a home, and it can also provide some financial security in case of an unexpected expense.
