Saving the Down Payment!
You’ve decided it’s time to purchase your first house. This is a huge step! Take a moment to congratulate yourself – I’ll wait…
OK, now that we’ve handled step one, let’s move on to step two – saving for your down payment and the other miscellaneous, pre-closing expenses.
To qualify for a conventional loan, your down-payment will cost you between 5 and 20 percent of the sale price of the house, in cash. It’s smarter to shoot for 20 percent because, putting down less means you’ll have to pay mortgage insurance.
Let’s s
ay for your first home, you set a budget of $100,000. The actual down-payment will run between $5,000 and $20,000. “Closing costs” usually run an additional 2-5% of the home price – so the total amount you’ll want to save is between $7,000 on the very low end and $25,000 on the more prepared
side.
Down Payment Saving Options!
There are a lot of ways to save that kind of money, some faster than others.
Making cut-backs
- You could begin by loo
king at your current budget and seeing where cuts can be made. Put the amount you save each month in a savings account (maybe even one you establish specifically for your down-payment) and leave it there. Another option is to calculate the amount you can save each month and have it directly deposited into a savings account, so you never have to worry about spending it to begin with. Consider the idea of taking on a roommate to offset some of your current costs and bank the additional savings.
Selling things
- You can make a real contribution to your saving plan by selling off the things that are cluttering up your life. Begin by taking a look at the things in your immediate surroundings that you don’t use. Things you haven’t used and are quite likely not ever going to use again. I’m talking about everything from clothes to furniture to the ukulele that’s collecting dust in the corner to the all-terrain vehicle that you bought and never really got the hang of. Ask yourself, do you really need a car? Sometimes the answer will surprise you. These are the things that stand between you and your home-owning future.
Take on more
- Take a part time job that exists solely to grow the down-payment fund. Any money made from the part time position gets directly deposited into your specific savings account. Part time jobs don’t have to take up a lot of your time – donating blood or plasma can be a lucrative way to add to your savings. Check into local studies being conducted at hospitals and universities that might pay for your time and expenses. Online tutoring and/or helping a student write a report they’re struggling with, or putting your specific experiences to work by consulting are all great ways to bring in more money.
Savings Match
- Finally, you can join a savings match program. The federal government has a savings program for low income people. They’re called Individual Development
Accounts (IDAs) and they can make a huge difference in achieving your goal of home ownership! You set a savings goal for each month over a set period of time. At the end of the term, the amount you saved is matched times two by federal funding. These are set up so you can use the money for buying a house, going back to school or starting a business! If you find your income isn’t “low enough” for an IDA, some federal home loan banks work with the IDAs and have higher income limits – sometimes the matching is also higher!
Saving for a down-payment doesn’t have to be as daunting as it sounds – making a few small changes can go a very long way to your goal of home ownership!