If you’re thinking of buying a house, you should probably think about offering a bigger down payment upfront so that it can save you more money later on. In this article, we will give you a few tips on how to save for a house down payment the smart and easy way.
Buying a house is not an easy matter, especially in these trying times, nevertheless, it’s still possible. Not that many people can afford to just go out there and buy a house upfront with cash, so most of the time the next best thing is to get a mortgage.
The thing is that mortgage rates and costs vary by state, so in this article, we will only focus on ways on how to save money for a down payment, and not go too deep into rates.
11 Tips on How to Save for a House Down Payment in 2021
1. Figure out how much should you save for a house down payment
The first step is to determine what your down payment should be. Ideally, that would be 20% of the purchase price, you will get some benefits like getting equity in your new house from the start but also get to cut on additional costs like insurance.
Sure, 20% might sound scary or too much and we understand, for example for a house that costs $250,000 you’re looking at a down payment of $50,000. And yes, that’s a lot of money to save just for a down payment.
But remember, it’s not “just” a down payment, you are basically investing the money into your house, an asset that you will own for many years, and even if you plan to sell the house, later on, you will still get the down payment back, because of your equity.
Of course, saving 20% for a down payment is not the right fit for everybody, and you must figure out what is the best percentage for you. To play it safe, your mortgage rate should not go over 28% of your monthly income.
2. Cut back on spending
This one is easier said than done, but if you put in the effort, it will work for sure. Here are a few tips on how to cut back on spending to focus on saving money for a house down payment:
- Work out at home – save about $60 a month just by working at home, the internet is full of free videos and apps on how to work out from home without the need of a gym. You could also invest a bit into equipment like resistance bands for example.
- Save your raises and bonuses – Yes, that fancy new watch or pair of shoes must have to wait a little longer now.
- eat at home more – This one is as easy as it sounds, you will save a ton of money by simply making food at home. If you don’t like cooking every day, just do meal-prep for the whole week on Saturdays or Sundays, and you’re golden.
- save on coffee and make it yourself – We are all guilty of this, we like to go to our favorite coffee spot and get our lattes and teas but, you could also brew your coffee at home, and take it with you in one of those fancy bottles that everyone is carrying around these days… bonus points it’s super environment friendly, and those $2-$5 or more that you spend on coffee daily quickly adds up.
- Use reward credit cards – Time to go big on those cashback rewards. Also, don’t forget the coupons and other deals that you can find for everyday life.
- Cut cable – who needs cable anymore? I don’t remember the last time I watched something on TV anyway… you’re probably the same, so cut it out and save about $110 a month.
- Skip on vacations this year – with the whole Covid-19 situation who even wants to go on vacation anyway, am I right? So skip it and save a ton of money to use as a down payment for your house, and also avoid getting infected. Win, win.
3. Get side hustle going or a second job
These days there’s a lot of ways to make extra money on the side. With the whole gig economy thing, people all over the world are making money just by using their phones, cars, homes, bikes, etc.
Here’ are a few examples of side gigs you can do:
Drive for a ridesharing company like Uber or Lyft (if you have a car of course, if not, see the next idea)
Do delivery for food and other services like Uber eats, Doordash, Postmates, etc. If you don’t have a car, you might as well just grab a bike and keep on pedaling.
Start an online business. Many people are earning a full time living just by blogging or doing sponsored posts on social media or setting up an e-commerce store, so look into that.
You could also teach, and pet sit or pet walk. Just think of creative ways and browse our website for more side hustle ideas.
If you like a bit of a more income safety net, you could also look for a second job that’s close to where you live or near your commute area, so that you could also save on gas.
4. Sell your stuff
Yeah, this one is easy, and might even be overlooked by some people. You can sell almost everything these days on eBay, so go ahead and take a look around and see what you can sell. Think about books, old clothes, garage junk, etc. It all adds up.
You could also create things and sell them on various online marketplaces, so basically you can turn your hobbies into money. You can even sell your homemade cookies online, who would have thought.
5. Put your down payment savings into an account
It might be tempting to invest some of your money into stocks, trusts, bonds, etc, but that’s not really the safest or smartest thing to do. Instead, you should save all your money into a savings account.
Specifically, a high yield savings account.
Choosing to save your down payment money into a high-yield savings accounts is a common practice these days, and it’s a safer bet than investing. Sure the “high” rates are not that high, but at least they have FDIC insurance and easy access.
6. Automate your savings for a house down payment
If you’re not used to saving money, setting up an automated savings plan is the best thing that you could do.
Most of us aren’t savers by nature, so an automatic solution is a perfect way to make sure you are progressing towards your goal of building up that down payment money and ultimately becoming a homeowner.
The process is simple. Every month you should have a percentage (or fixed sum) of your income to be sent directly into your savings account.
Doing it this way, you are sure to make progress and also limit the temptation of spending some of that extra money on non-important stuff.
7. Don’t dip into your retirement savings or emergency fund
Sure you might get the benefit of being able to withdraw up to $10,000 from an IRA without any penalty if the scope of the withdrawal is to buy a house.
The thing is though, that means you will have to start saving again for retirement and put it all back in order for you to enjoy your life after you stop working.
Not to mention that if you do use a 401(k) to get a mortgage and you lose your job, that loan must be paid back before the next deadline or it will be taxed as ordinary income and get hit with penalties if you withdraw too early.
Also going into your emergency funds is a bad idea because you should still expect and be prepared for major expenses like car repairs, house maintenance, unplanned medical issues, etc.
If you use up those funds for your down payment you will be left with nothing and that’s not optimal.
A better option would be to redirect the monthly savings money.
Simply redirect some of the money (if not all of the money) that you are saving for retirement or your emergency fund every month, and put it into a down payment savings account.
You will essentially put a “pause” on savings for retirement, but with the bonus of also keeping all the previous saved funds in case, you need them later on.
8. Borrow from relatives
Yes, this one seems obvious, but many people are doing it these days. And some of our parents even did it too when they first bought their house.
Obviously, you should know the person or relative well enough for you to even try this, but think about close family first like parents, siblings, etc…
Many people straight up just ask for cash at their baby showers or weddings, just to save for a house down payment, so you should not feel embarrassed to do that as well. Even on your birthday, when people ask you what would you like, you should just be honest and say cash, $20 is still $20 that you could save.
9. Stop your bad habits
You could stop smoking and not only save money but you could also on your health and life insurance, with bonus points of extending your life a little bit longer. Of course, we know it’s a difficult thing to do, but maybe at least try and reduce the amount you smoke.
If you like to drink on the regular, I have bad news for you too. Cut it out completely or again, at least reduce the amount you drink. So instead of 2 glasses of wine per day maybe try 1, and instead of 6 beers with the boys maybe go for 2 or 3. Or stay at home, and save even more.
Do you also gamble, bet on sports or play the lottery? Guess what, you can save thousands every year if you simply stop doing that. Besides, the odds are almost never in your favor anyway, so 99% of the time you end up throwing your money away.
10. Fix your debt before you save for a house down payment
Did you know that lenders will always look at your debt-to-income ratio in order to see if you’re a suitable mortgage candidate?
Well, now you know.
So before you go and apply for a mortgage, you should try and reduce your debt first. Even if you can’t become debt-free in a few years, reducing your debt is still an important part for you to try and do in order to have better chances at getting a mortgage with good rates.
11. Save money on insurance
If you have various insurances with a bunch of carriers, chances are that you might save more money if you consolidate every type of insurance with just one insurance company.
Many insurance companies have promotional bundles if you sign up for all of their services, and many times these come out at a cheaper rate than if you were to use various companies for different insurance policies.
If you don’t like to have everything under one company, then another option would be to simply try and find better deals with either the carriers you have currently or switch to others that have more favorable rates.
So, there you have it, 11 ways on how to save for a house down payment. We hoped our article was helpful and informative, don’t forget to share it.