The time has come. You’ve had it with renting and are ready to become a homeowner. Even though you’re mentally prepared for this next stage, you may not be financially ready to make a sizable down payment. Saving a large sum of money is no easy task, but it can be done with a financial plan in place. To help you put away money as quickly and as wisely as possible, here are five ways you can save for a down payment.
1. Create a Monthly Budget
If you don’t already have a monthly budget in place, there is no better time to start than when you want to buy a home. Of course, creating a budget is the easy part; it’s sticking to it that requires you to be honest with your saving goals and realistic about your spending habits. Create a list of your monthly expenses and note when things are paid off. Take advantage of the countless budgeting apps available if you prefer to budget digitally.
2. Make Savings Automatic
First things first: setup and put money in your savings account. Once you have an account solely for savings, notify your payroll department you want a certain amount deducted from every paycheck to this account via direct deposit. As long as you have a solid monthly budget, this deduction will be barely noticeable. So start small and adjust if needed.
3. Save all Windfalls
4. Put Away less for Retirement
If you have a 401(k) match, then consider saving less for retirement during this period. Your employer-sponsored contributions typically stop at 6%, so capping your own contributions there and allocating remaining funds toward your down payment can make sense. Additionally, if you’re strapped for cash, taking money from your existing IRA can help you save. You can withdraw up to $10,000 from your retirement fund without penalty in order to help finance your payment. But you must use the funds within 120 days of withdrawal to pay the qualified cost.
5. Downsize Your Lifestyle
Consider all the aspects of your life that you may be spending too much on. What or how many cars you drive, where you’re currently living, and the size of your property are all aspects of your life that can be better managed. And what about your spending? Evaluate vacation, recreation, and dining expenses to see where you can cut costs. Learning to be more financially savvy will allow you to save for your down payment and reach your homeownership goals quicker.
Remember, don’t punish yourself too much. Learning to live within your means is all part of keeping your peace of mind.
Thinking of becoming a homeowner? A ditech Home Loan Specialist can help you determine the right mortgage and down payment to put you on the path to homeownership. Find a Home Loan Specialist now.
Ditech is not a financial advisor and the steps outlined above are for informational purposes only. They are not intended as investment or financial advice and should not be construed as such. Consult a financial advisor before making decisions regarding important personal financial matters.