Most Americans have a hard time saving money. The U.S. Federal Reserve states that over 45% of Americans do not even have $400 in their savings account. Even after raises and promotions, studies show that income increases often result in an increase of spending. Savings are vital, especially if you’re hoping to invest in your first house. How much do you need to save for your home down payment?
Typically the minimum down payment on a home will range from 3.5 percent to 5 percent of the purchase price. However, you can always save more, and there are advantages to being able to make a higher down payment. For example, if you can make a 20 percent down payment, your monthly payments will be lower plus you will not have to pay Private Mortgage Insurance each month, reducing the monthly amount even more.
If you are struggling to save up for your first home down payment, here are some tips:
Make a budget and stick to it.
First you must have a home price in mind and then estimate how much your monthly payment will be. If you need help figuring out this amount, most banks and mortgage companies have free calculators online that you can use. Once you have an estimate of what out what your monthly house payment will be, subtract your current rent from that number. Then set aside the difference each month. This will not only help you save for your home down payment, it will set your future mortgage payment into your budget to ensure that you can afford your mortgage once you buy a home.
Automating your savings makes it easier.
Open a savings account and label it “My Home Down Payment.” Set automatic deposits from your checking account into your new savings account each month. In no time at all, you will have accumulated a decent amount with money you didn’t even miss.
Supplement your income.
It’s easier to save money if you’re making money and every little bit helps. With most of us working around 45 hours a week, there is plenty of time to make some extra cash on the side. You could look into taking on some overtime hours at your work. Or you could try making money doing freelance work or taking on a short-term part-time job.
Make the most from what you have.
Find ways to reduce spending. Switch to less expensive cell phone plan, for example, or cancel recurring services that you don’t really need. Use coupons and look for deals when you shop. Living with roommates for a couple of years just out of college can save you thousands of dollars. Or if you have a spare room, you could rent it out to increase your income. Any items that you don’t use anymore that can be sold online or at a consignment shop are potential sources of cash. Or hold a garage sale to sell a bunch of items at once.
Accumulating enough money for your first home down payment can be daunting, but when you’ve finally done it, you will have proven that you are financially responsible enough to own a home. After all, that’s the whole reason banks require a down payment.
Lakeside Title Has Smart Resources
If you’re a first-time homebuyer, check out our Smart Resources page to learn more about title insurance and to find other useful information and tools. Lakeside Title Company is proud to offer title insurance and services designed to simplify residential and commercial transactions for buyers and lenders. To learn more about our comprehensive title-related services, give us a call at 410-992-1070.