If you’ve been scoping out homes on Zillow and Trulia it may be time to get serious about saving for a down payment. Most of these online listings assume a down payment of 20% of the sale price when calculating the estimated monthly payment. Our down payment was closer to 10% which mad our monthly payment higher. If your ready to start saving for a down payment, follow these steps.
1. Make a Budget. Excel has several templates for monthly budgets. These tables will help you compare your monthly income to your expenses. There is one caveat to this. If you are just starting your budget journey you may be spending more than you think you are. For example say you budget $400 a month for food. This may seem like a reasonable amount, but is this what you have been spending a month? First look at your debit or credit card statements for the past three months to see what you have been spending. Next try using cash only for variable expenses. For this purpose variable expenses would include cash for eating out, groceries, clothes and entertainment. Another great tool is Mint.com. Mint has tools that track your expenses by categorizing your debit or credit card transactions into categories like “groceries” for all charges at grocery stores or “utilities” for charges from the city or cable companies.
2. Cut Unnecessary Expenses. Now that you know where you’re spending money you can find ways to save.First thugs first, if you’re hoping to buy a home, cut out your cable. There are tons of other ways to spend your free time including cooking reading listening to music. This doesn’t have to be a permanent thing, but cutting cable for a year will make a serious difference in your savings. We pay $48 for internet with Frontier. With cable that was $78. A savings of $30 a month or $360 dollars a year.
3. Save in A Safe Place. Do. Not. Put. Your. Down. Payment. In. Your. Mattress. Ideally you want to put your down payment savings in a high yield savings account. These are almost always online accounts. If your planning far enough out, you may be able to put your down payment in a CD. CDs require you to leave your money untouched for a minimum of six (6) months, but the earn a higher interest rate. You need to make any large deposits at least two months before you apply for a home loan. Any large deposits will have to be explained usually with documentation. For example when we applied for our home loan my boyfriend got a financial aid check for his grad school. He had to provide documentation showing he had enrolled in classes and been awarded financial aid. I guess generally banks don’t approve loans when the down payment come from money laundering? Whatevs.
Buying a home can be an exciting and stressful experience, but if you have money for a down payment you will be in a better position when you find your dream home. How did you save for a down payment?