Before you even start looking at houses, one of the first things you need to think about is your down payment. If you can’t afford a down payment for a home, you’re not going to be able to purchase it. We all know saving money is often easier said than done, with all of the expenses we are responsible for on a day-to-day basis. With that said, there are plenty of ways to conserve funds to afford a down payment for a home.
Several down payment savings tips to help ensure you secure the house of your dreams include: setting specific goals, focusing on improving your credit, weighing your mortgage options and cutting unnecessary expenses, among others.
1. Weigh Your Mortgage Options
While your credit affects your down payment, so does the type of mortgage loan you obtain. Conventional loans often require borrowers to put down 20 percent. However, other loans and programs may require as little as 3.5 percent. Among these, the Federal Housing Administration (FHA) loan, only offered by FHA-approved mortgage lenders, was established through the National Housing Act of 1934 to help people become homeowners, and offers more flexible qualification requirements. First-time home buyers especially should contact a trustworthy mortgage lending company to learn more.
2. Focus on Credit
A healthy credit score is essential when seeking approval for a home mortgage loan—sometimes even playing a role in the minimum down payment percentage you’ll be required to pay. It's therefore important to look for ways to improve your credit. Speaking with a mortgage loan originator would again likely prove advantageous, especially since he or she can share pointers based upon the requirements of the loan you're applying for. Reference our previous post about what impacts your credit score to get started.
3. Improve Your Debt-to-Income Ratio
Another piece of advice when saving for a house down payment involves improving your debt-to-income ratio. While it may seem that spending money to pay off debt would negatively affect your down payment savings, an article titled Should I Save for a Down Payment on a House or Pay Off Debt? on Money Crashers—named “one of the top personal finance blogs” by Business Insider—contends that by improving your debt-to-income ratio, you’ll have the opportunity to qualify for different mortgage loans, which may actually require less of a down payment than others.
4. Set Specific Goals
Being specific in your objectives and creating mini goals within the time frame helps maintain accountability and document progress. For example, let’ say you’re aiming to have enough money for a down payment for a house exactly six months from today. This means saving X amount of money in one month, two, and so on. Consulting a knowledgeable financial expert and mortgage loan originator can also be beneficial, since they can assess your finances and help determine what those specific dollar amounts should be.
5. Keep Your Finances Organized by Tracking Your Expenses
Organization is a key factor when trying to achieve a goal. Knowing what you need to do and how to do it, all while keeping track of your progress along the way, is essential. Consequently, figuring out just how much money you’re spending, whether via cash, credit or debit card purchases, is important. It could help ensure you’re not overspending, and even assist in determining where you can cut unnecessary expenses. While a simple spending list can suffice, there are “expense tracker apps” you can use, as well.
6. Bring Your Lunch to Work
Okay, this might sound like a basic no-brainer, but buying lunch every day adds up, even if it’s just a few dollars—and every penny counts when you're saving for a home.
7. Cut Unnecessary Expenses
Take a moment to consider any unnecessary expenses you’re taking on. For instance, if you're paying for a gym membership but haven’t been there in a few months, now is the time to cancel. Additionally, we all know how expensive coffee can be from established chains. Brew your own instead of purchasing it. trust us, it adds up, especially if you're a daily caffeine person, such as most of us.
8. Plan Your Shopping Trips
Although this may seem insignificant, it could make a big difference in the long run. Whether your kitchen cabinets are collecting dust or you’re in desperate need of toiletries, like toothpaste, shampoo and conditioner, making a list of the exact items you need before heading off to the store—and sticking to it—will help with house down payment savings.
As stated in a study published by the American Marketing Association (AMA)'s Journal of Marketing titled The Role of Within-Trip Dynamics in Unplanned Versus Planned Purchase Behavior, “The longer a shopper is in the store and exposed to more items, the greater the probability that the shopper will be exposed to items that cue a forgotten want or need.”
9. Have a Yard Sale
We oftentimes don’t realize how much stuff we’ve accumulated over the years until we take some time to go through it all. Not only does hosting a yard sale enable you to clean out and reorganize, but it can also help boost your savings for a down payment.
10. Open a Down Payment-Designated Bank Account
This way, you’ll have a special place to solely put the funds you want to use for a down payment on a house. Watching it grow will lift your morale, and strictly dedicating it toward this mission will prevent its funds from being spent on other things.
11. Increase Your Income
Oftentimes much easier said than done, it's most definitely worth trying. As discussed in a January 2018 article titled 12 Ways to Increase Your Income This Month in the online advice site and magazine Entrepreneur, one potential option is to “take paid surveys online” and/or sell any unneeded items, such as textbooks, online. Been quite a bit since you asked your boss for a raise? Well, now's the time.
Contour Mortgage has been helping would-be homeowners secure the homes of their dreams for more than 25 years. Contact us today to consult with our team of experienced experts and learn about the various financing options available.