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How to Save for a Down Payment

Written by Posted On Wednesday, 27 February 2019 11:08

If you're looking to make the transition from renter to homeowner, it's likely that one of your biggest obstacles is saving up enough money for a down payment.

While it's possible (in some situations) to get approved for a mortgage without a down payment, or with only a small one, it's generally not recommended. A more sizable down payment will give you instant equity the home, give you some protection against dropping home values, and – this is the big one for many first time home buyers – it will reduce your monthly mortgage payment. The more you put down, the less you'll owe.

Not only does a larger down payment lead to a smaller monthly payment, if you're able to put at least 20% down, you can avoid the need to pay PMI (Private Mortgage Insurance). PMI is insurance that benefits the bank in case you default on the mortgage. There is no benefit for you, so avoiding it is ideal.

Ok, so now that we've looked at why it's important to have as much as possible for the down payment, let's take a look at some things you can do to start saving.

Create a Budget

The first thing you should do to improve your money management and start saving is to create a monthly budget. “Budget” is seen almost as a curse word to some people, but it really doesn't have to be bad. The budget simply guides how you spend your money. You can set up the budget categories and amounts any way you choose, as long as it keeps your expenses low enough that you're able to save each month.

Scrutinize Your Expenses

Go through your monthly expenses and scrutinize each one to see if it's necessary. Of course, it's ok to spend money on some things that are not 100% necessary, but you'll want to be sure that those expenses are bringing enough benefit to justify parting with your money.

By going through your expenses with a critical eye, you can probably find a few easy ways to reduce expenses each month, and that's more money that you can be saving towards a down payment.

Increase Your Income

There are a few different ways to make more money. You can ask for a raise (you may get it, you may not), work overtime (if it's available), apply for a higher paying job with your current employer, or look for a higher paying job with another employer. Unfortunately, leaving your company and going somewhere else is often the best way to increase your salary or compensation.

Start a Side Hustle

The other way to increase your income is to start doing something for money outside of your job. Today, there are countless options for side hustles. You could drive for Uber, clean houses, mow lawns, offer some sort of service, or start an online business. Those are just of the few ideas you could pursue if you want to start a side hustle.

If you're looking for a side hustle, consider your hobbies and see if there is something that you could turn into a money maker. There are a lot of hobbies that make money, and this can be a great way to have fun and earn extra money at the same time.

Take Advantage of Free Offers

It may seem too good to be true, but there are actually a lot of different ways that you can get free money. You can check sites like Missing Money to find money that is rightfully yours (I found $150 with just 5 minutes of effort).

One of my favorite ways to get free money is to take advantage of credit card sign up bonuses. Some credit cards will pay you up to $500 just for signing up and making your normal purchases for a few months.

Take Action

Now that we've looked at some possibilities, be sure to take action and start saving for your own down payment.

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Marc Andre

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