Simple Ways to Save for a Down Payment on Your Home
- April 16, 2018
- Posted by: Daniel Rowe
- Category: First-Time Buyer, Home Loans, Tips
When you buy a house, making a good-sized down payment on the home gives you an advantage in the long run. Larger down payments mean borrowing less. And borrowing less means using less of your money on interest payments. While the thought of a large down payment for a house may seem daunting, saving for one is more simple than you think.
How Much Do I Need for a Down Payment on a House
Most people assume that getting a mortgage means you must make a 20% down payment. But that’s simply not true. For instance, an FHA loan can require as little as 3.5% down. For a $180,000 house, that’s only $6,300! Many people find that’s a manageable down payment amount.
There are even better options for borrowers who qualify. For instance, a VA loan for veterans can offer a reduced or no down payment to purchase your house.*
Cutting Expenses to Save for a Down Payment
The first thing you can do is take a look at your monthly budget and see where you can make cuts. If you simply make a list of your monthly expenses, you may be surprised at how much you’re paying for 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.
You might also consider skipping a vacation or choosing a place closer to home. The effort to save money may help you discover a fun spot within driving distance that you’ve never been to before!
You can take a look at products and services your subscribed to and cancel those you don’t use. You may have forgotten about an old Spotify account or an app you don’t use much anymore. Apps like Trim can help you automate that and find potential down payment money you didn’t realize you had.
Plan your entertainment and free time in advance. Make a real budget for groceries, then stick to it. You may have to cook more, but that has good benefits too.
Pay off high-interest credit cards. Start off with your credit card that has the highest interest and make it a priority to have your balance gone. When you’ve closed the first-highest card, 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.
To recap, here are our favorite ways you can save for a down payment on a house:
- Cut expenses you don’t need
- Skip or take a “budget” vacation
- Cancel subscriptions you don’t need
- Cook at home more often
- Plan entertainment in advance
- Pay off credit cards with high interest
- 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
After you have a little bit save for your down payment, use those savings to create more. There are low-risk options that can provide you a steady stream of cash. And when you’re trying to source that initial down payment, every little bit helps.
For example, 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 on that initial investment.
An average CD has an APY (annual percentage yield) of 0.51%. But there are places where you can stash that money away and get double the return over your term. Check out this list of CD’s with even higher APYs. Terms typically range between 6 months and 60 months. The APY can be a fixed rate or a variable rate, just like a mortgage rate can. If you were to stash away $10K in a CD for a year, you can reasonably expect to see a $500+ return. Again, signing up for a CD isn’t like hitting oil, but it puts your small savings to work when saving for a down payment on a house.
Manageable Options for Your Down Payment on Your House
As you save up for a down payment on a home, it’s time to buy. Before you do anything else, let The Wood Group of Fairway help you select the mortgage product that’s right for you. Complete this short questionnaire for a no risk, no obligation consultation with a loan officer. We would love to talk now before you start saving. This gives you a chance to ask us questions about saving for a down payment on your home.
*A down payment is required if the borrower does not have full VA entitlement, or if the loan amount is greater than $453,100. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit standards, and property limits.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply.