Being able to make a decent down payment on your house gives you an advantage in the long run. Larger down payments mean borrowing less. Borrowing less means using less of your money on interest. Saving for a down payment on a house can feel impossible. But it may be more simple than you think.
Cutting Expenses to Save for a Down Payment
There are probably items in your budget that you can eliminate or reduce. Make a list of every single one of your monthly expenses. You may be surprised at how much you spend on things you don’t really need. For some prospective buyers, saving for a down payment on a house may only be a matter of cutting back on unnecessary expenses for a few months.
If you’re someone who travels long distances for vacations, maybe skip the vacation this year or choose a place closer to home. You may discover a fun spot within driving distance that you’ve never given a chance before!
Check out which services and products that you’re currently subscribed to. You may have forgotten about an old Spotify account or another software subscription you don’t use much anymore. So, get rid of it!
Make a real budget for groceries and stick to it. You may have to cook more, but that has other benefits as well. Who knows? You might discover you’re a real chef in the kitchen.
Pay off high-interest credit cards. This is a big one that helps your down payment and your credit score. Start off with your credit card that has the highest interest, and make it a priority to zero your balance. Then, move on to the next one. If possible, it may be easier to simply transfer your outstanding balances to your credit card with the lowest interest rate.
- Skip or take a “budget” vacation
- Review your subscription services
- Cook at home more often
- Pay off credit cards with high interest and big balances
- Transfer balances to your credit card with the lowest interest rate
Put Your Savings to Work with a Certificate of Deposit When Saving for a Down Payment on a House
Funds that you already have can also help you save for a down payment on a house. Although these low-risk options don’t provide a goldmine of free cash, every little bit helps when saving up.
If you have some cash on hand, no matter how small, you may want to consider a certificate of deposit (CD). Most CD’s require a small savings account of $500 or more. You agree to not use the funds for a certain amount of time (a “term”), and in return, you earn interest.
An average CD has an APY (annual percentage yield) of 1-5%. Terms typically range between 6 months and 5 years. Signing up for a CD isn’t like striking oil, but it does put your stagnant savings to work when saving for a down payment on a house. Every little bit counts, and committing your money into a savings account could serve as the encouragement you need to keep going and take the next steps.
Manageable Down Payment Options
Although most people assume that lenders expect a 20% down payment on a new home, there are options for buyers in different situations. For instance, a VA loan for veterans financed through the Wood Group of Fairway does not require a down payment in many cases. Many of our other loan options have low or no-down-payment options for those who qualify and never served in the military.
Contact us today for a no-obligation consultation with one of our mortgage advisers. You can ask any questions you have about down payment options or any other part of the process!