The higher a down payment is on a house, the cheaper the mortgage will be. It’s simple math.
The traditional down payment of 20 percent for a house is just that — traditional. There are all types of loans that can range from zero down to 3, 5 or 10 percent of a home’s purchase price required upfront as a down payment.
Saving big — such as 20 percent — is a smart way to prepare to buy a house because the more money that’s put down, the more favorable the loan terms can be. Whatever amount you want to come up with for a down payment, there are different ways to save for it. Here are a few:
Divide it into increments
Let’s say you’re planning to save for five years before you buy a house. If you want to save $50,000 for a down payment, you’ll need to save $10,000 per year. Divide that by 12 and your monthly savings goal is $833.
However you accomplish it, that’s your monthly goal — saving $833 per month. It’s a big number, but it’s a lot smaller than seeing the ultimate goal of $50,000, and is easier to comprehend than an annual $10,000 goal. With that goal in mind, your next step is to figure out how to get there each month.
Save money everywhere you can
Any expenses you can save can add up to monthly savings — as long as you put that savings aside in a savings account for your down payment fund.
Look at cutting cable TV, cell phone service, gardening and housecleaning bills, and any other expenses that can either be cut back or eliminated. Put the difference in your savings account.
Work extra and sell your extra stuff
Two people can save for a house by working an extra two hours per day. There are all kinds of jobs in the “gig economy,” from dog walking to house sitting, driving Uber, tutoring and selling a service or product online.
If you have extra stuff that you’re not using anymore, sell it online. If your old bike is collecting dust and is in good shape or can be repaired inexpensively, chances are someone will buy it.
Whatever extra money you make, invest it and let it work for you for the next five years. Compound interest from a mutual fund that you contribute to monthly can grow a lot faster than a savings account can.
Before investing, know that you can lose some or possibly all of your investment. So only invest as much money as you’re willing to risk losing. The longer you invest, the more likely you are to ride out market volatility and meet your financial goals.