Saving up for a mortgage down payment can seem like an insurmountable goal, especially since the average down payment (not including closing costs, inspections, etc.) is on average 20% of the homes price. However, setting aside this sum is actually reasonable for most people if you are willing to take the steps necessary to make it happen.
When making a mortgage down payment the more you put down up front, the more money you’ll save in the long run. This down payment goes directly towards the purchase price of the home, reducing the amount of your loan as well as the amount that you’ll be paying interest on over the term of the mortgage. Saving a substantial amount of money in the future can be a big motivator to cut your expenses now.
The most important thing you can do to reach your savings goal is to create a plan that is specific and attainable. When you iron out the details it’s easier to stick to a specific plan than a vague idea. This way you know exactly how much you can save on a regular basis, which expenses you can cut back on, and how long it will take you to reach your goal.
Review your monthly budget, or create one, and ensure that every regular expense is accounted for. When you assess your cash flow, it can help you to understand the bigger picture and how quickly things can add up. It also helps you evaluate which things you can cut out entirely. For instance, if you only watch TV using services like Netflix or Hulu, why pay for cable? Cut costs where appropriate and you’ll likely find that you can free up more money each month than you thought.
Make Some Extra Cash
You don’t have to get a second job and work yourself to death in order to save up for a mortgage down payment. There are many small things you can do to bring in more cash. Depending on your current living situation, getting a roommate or renting a room on sites like Airbnb can add up to hundreds of dollars each month.
Reevaluating the amount taken from your paycheck in taxes, as well as the amounts you’re paying for insurance, can also put more money back into your pocket. If you tend to get a sizeable income tax return, it’s likely that too much of your money is being taken out of your check each pay period. Money which could be earning interest in the bank. Have a conversation with your employer to find out if there are changes you can make to lighten your tax burden (without causing you to owe money), then put any extra money you get directly into savings. The same goes for your insurances. Shop around a bit and if you find a better deal, that extra cash should go straight to the bank.
Keep Your Savings Separate
One of the most important things you can do is to keep your savings in a separate savings account rather than in your joint checking or savings. This will make it more difficult for you to spend the money that you’re supposed to be saving. If you keep the money in your checking or associated savings accounts, it can be tempting to dip into it, especially as unexpected expenses come up. A good rule of thumb is to establish an emergency fund of several month’s living expenses, this way every penny in your mortgage savings account can go towards its intended purpose, and not to things like car repairs.