Whether it’s a good time to buy a home or not, the first step you need to take on this journey is saving your money. A down payment will not only help to purchase a new home, but also help to determine what you can realistically afford. But starting with nothing isn’t really an option. Saving for a down payment is likely one of the hardest steps in the homebuying process, but it can be done. Here are five strategies to help you save for a down payment and get you into your new home faster.
Whether you have a portion of your paycheck deposited into a savings account or you set up your bank account to transfer money each week, automating your savings is a tried and true strategy to help you stack up your cash. With automation, you remove the pressure of seeing how much money is deducted from your paycheck each and every payday. Think of automating your savings as a way to set it and forget it. Before you know it, you’ll have saved up enough to put towards your down payment.
Now of course, this is a no-brainer. The less you spend, the more you will save. But the strategy here is not to just spend less, but to spend less on larger expenses. Because the average cost of rent takes almost 30 percent of your take-home pay out of your pocket, you may want to consider either moving to a cheaper rental or getting a roommate to help share the cost. Also consider other large expenses you have, such as a new car, that can be reduced or cut out completely.
Stashing Extra Cash
If you are lucky enough to receive a tax return, it can be very easy to splurge when you receive a large chunk of cash. However, as you think about purchasing a home, it may be time to cut back on the reckless spending and change the path of where that money lands. Of course, pay off outstanding bills, such as credit card debt or student loans, but don’t pass up a prime opportunity to stash away even a portion of this money.
Cut Retirement Savings
Of course, saving for retirement is important. However, depending on your job, age and location, you may be able to get away with cutting some of your retirement savings for the time being. For those who have a 401(k) employer match, and are contributing the max of 6 percent, consider lowering or halting these savings for some time. This will allow you to save for a down payment and you can always alter your contributions down the road.
Ask for Help
Family and friends can be a major factor when it comes to building your savings to purchase a home. With gift funds, family and friends can help to contribute to your down payment, tax-free. For those who are getting married, consider skipping the gift registry and instead ask for cash to save up for your new home. Even a little bit can go a long way. Just be sure that whatever funds you receive, especially those designated for a down payment, are put away into a safe and secure savings account that is specifically set up for your future home.