Last Updated on March 14, 2019 by Kari-Ann Ryan
Coming up with the standard 20 percent down payment for the purchase of a home can seem like a daunting endeavor for many people, especially for those who maintain just a few thousand dollars in savings at any given time.
The five-figure minimum you are required to put down for a house can be realized with a few hacks, practical knowledge and persistent effort. So here are the top ways on how to save for a down payment on a home.
1. Calculate a Monetary Goal
Planning goes a long way in helping you realize your financial goals. Upon using an online homebuying calculator to determine what kind of price you can afford, figure out a reasonable sum of money you can set aside every month toward the down payment.
Let’s say you aim to purchase a home in the next five years. If you plan on putting down $48,000 toward a new home, you’ll need to save $9,600 each year. Reduced to bite-sized chunks, expect to sock away $800 per month.
Coming up with an extra several hundred dollars a month requires significant cost-cutting efforts and effective strategies, like the ones that follow:
2. Invest in Stocks
Risking money in the stock market is advisable only if your home-buying plans are several years away. The volatile ups and downs of the stock market can leave you with significant losses in the short term. Over the long run, however, stocks tend to see a rise in value.
Stay financially safe by investing a limited 25 percent of your down payment money into the stock market. This way, if the market drops drastically at the precise time of buying your home (which is a realistic possibility), the majority of your funds will be protected.
3. Bear Interest in an Online Bank
Stash some cash in an online money market savings account, rather than a brick and mortar bank. Your money will bear far more interest in an online bank than a local branch. The difference in interest will help accelerate your down payment savings efforts.
4. Buy a CD
A certificate of deposit can be an additional approach in your arsenal of down payment savings strategies. CDs can be purchased with maturity dates of any length, including two, five, or more years. Arrange for a CD that matures around the time you will require your down payment.
5. Tap into a Retirement Account
A 401(k) loan can be used to partially or fully finance your down payment. Use this approach with caution, as the drawbacks of pulling from a retirement account before retirement can cause a serious financial strain. The repercussions are clear and are as follows:
The 401(k) loan must be paid back within five years. If you switch jobs, the payback time span is reduced to 60 days. If you plan to change jobs within 5 years or expect to retire within 10 years, it is advisable to not pull from your retirement account.
6. Set up Automatic Transfers
Convenient and painless, automatic fund transfers from a checking account into a savings account ensure your savings are added to incrementally. Those who set up transfers hardly miss the money dropped into their savings account. Automatic transfers are one of future homebuyers’ most popular methods of securing a down payment.
7. Cut Expenses
Reducing your monthly expenses is an obvious yet effective strategy. Intimidating at first, gradually cutting down on frivolous expenditures and saving that money in an interest-bearing account will speed up the growth progress of your down payment savings. Trimming expenses is a guaranteed method to boost your down payment reserves.
8. Pay Off Debts
A credit card balance can eat away at your savings, especially if the card features a high interest rate. Invigorate your savings by paying off the credit card with the highest interest rate. Continue the practice with all credit cards, or transfer the balance to the lowest interest rate card.
9. Delay vacations
Either opt for fun in the sun or help fund your down payment. Hold off on your next vacation or two and set aside that vacation money. Invest the vacation funds into stocks or a savings account and see your down payment savings grow.
In order to save, you’ll need a source of funds. Rather than spend an expected tax refund, a monetary gift or a workplace bonus or raise, save this money wisely. Nurture your down payment savings account by saving each additional source of funds.
11. Investigate Down Payment Assistance
Certain individuals may qualify for financial assistance geared specifically to fund homebuyers’ down payments. Such organizations include the Veterans Administration, Federal Housing Administration, and the US Department of Agriculture Rural Housing Service.
The Veterans Administration mortgage does not require a down payment; veterans, their families and active duty servicemen may apply for a VA loan. The FHA stipulates a 3.5 percent down payment if you have a 580 or above credit score. The USDA also offers lower loan rates to eligible individuals.
13. Refinance Loans
Outstanding student loans or car loans can be refinanced. In the event your student loan interest rates or car repayments are lowered, expect to save thousands of dollars that can hasten the funding of your down payment.
Work with a Reliable Mover
With a larger down payment, your home buying options expand. With a tactical approach, your down payment savings plans will open doors—like the one to your new home. When you are ready to move in, seek the assistance of the area’s most professional mover, Mid-West Moving & Storage.
Mid-West Moving & Storage has moved over 2,500 families and companies to and from houses, apartments, dorms, retirement communities, and commercial buildings with ease. All moves are handled with exceptional care. Building materials and floors are protected with carpet shields, floor runners, and furniture padding.
The professional movers at Mid-West Moving & Storage are licensed, bonded and insured to provide customers with maximum peace of mind. Stay updated on every stage of your move via our open line of communications through email and phone. Comprehensive moving services include packing, unpacking, and long- and short-term storage.
Mid-West Moving & Storage moves people in and around Chicagoland. With a dedicated crew, solid equipment and approved procedures, Mid-West Moving & Storage will ensure your move is hassle-free from start to finish. Free estimates are available to help start your journey.
For a free estimate on your next move, contact Mid-West Moving & Storage at 847.593.7201 or fill out a contact form and we will get back to you shortly!