Five Ways to Save for a Down Payment

If you are looking to buy a house in the near future, you are probably also looking for the best ways to save for your down payment. The larger the down payment you have, the lower your monthly payments will be, making this an important step in your overall financial plan. This becomes especially important if you can put at least 20 percent down. By doing this, you will be able to keep from having to pay private mortgage insurance, or PMI. These extra charges are required if you have less than 20 percent equity in your home and are not tax deductible.  There are some simple strategies you can take to maximize your down payment.  As you plan to begin the home buying process, keep these ideas in mind:

1. Get Motivated
If you are truly interested in saving as much as you can, you will need to have the right frame of mind. To save money effectively, you have to really want to save it. It takes some willpower to forgo those things you normally do, like eating out, purchasing new clothes, and going on a weekend vacation. While you are saving for your down payment, you should do all you can to squeeze the most you can out of your budget.

2. Budgeting to Save
Your budget can be your best tool for saving money. If you are not already doing so, now is the time to start keeping track of all of your expenditures. See if there are places in your budget you can cut spending, like magazine subscriptions, eating out for lunch, babysitting expenses, and clothing purchases. You can also look for ways to decrease your spending by considering using coupons, carpooling, taking your lunch to work, and making your own coffee at home.

3. Develop a Savings Plan
You will also need a strategy for handling your savings before you actually purchase your home. Your best bet is to open a special savings account for just this money. Consider using a certificate of deposit (CD) account. Although you would be penalized for an early withdrawal, you will get a better interest rate than a regular savings account. And that penalty might just be a good incentive to keep from using that money for other purposes.

4. Reduce Your Debt
You will want to be sure to keep your credit rating as high as possible during the time frame before you buy your home. This means making sure that you are paying all of your bills on time. If possible, begin paying down your credit card debt as well, as this can help you get a better rate on your home loan.

5. Explore New Places to Get More Money
Consider implementing an automatic transfer from your paycheck to your savings account. That way, you will not see the money and will be less likely to spend it. If you are normally given expensive gifts for birthdays or holidays, let your friends and family know you'd prefer to have the money placed in your savings account. If you do pay off a credit card, car loan, or student loan during the time before you purchase your home, keep writing checks for that amount and deposit them into your savings account. Finally, consider a short-term second or weekend job to generate some extra cash flow. You can do this until you buy your home and will appreciate the extra money when you finally do sign your closing papers.

 

Tom Kile and Darrell Nipp are your Amarillo real estate experts!
Tom Kile & Darrell Nipp
3440 Bell, Suite 100
Amarillo, TX 79109
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