Putting a good chunk of money toward a down payment on your house is a good way to save over the long haul. But it can be hard to come up with a large down payment, and still keep up with your current bills, especially if you have student loan debt, or credit cards that still need to be paid monthly.
It's enough to make you want to scream.
Our mortgage pros talk to people about this struggle all the time, and you’re not alone. Luckily, there are a few tricks and tips they’ll happily share with you, to help ease the pain of getting started on that down payment.
1. Talk to a Mortgage Professional ASAP
It’s important to realistically set your expectations so you know how much money you’ll need, and aren’t just guessing. That’s why step one is to talk to a mortgage professional you trust and have them run your numbers to see how much you actually need to save.
A mortgage originator (loan officer) will be able to help you determine how much house you can comfortably afford, and from there, figure out which of the loan programs you qualify for, and how much you’ll have to save for a down.
If you caught the post we just did about the 5 myths that are holding people back from buying a home, you’ll know that one common myth is the idea that you need to have at least 20% down to buy a home.
There are plenty of loan programs that require as little as 3% down, and even a few government backed down payment assistance programs in California that can drop that number even lower.
Consider this: the average median home price in Placer County as of February 2018 is $472,370.
A 20% down payment on a $472,370 home would amount to $94,474.
A 3% down payment would only require saving $14,171.
Trying to save nearly a hundred thousand dollars is a lot more daunting than saving around $15k. Set the expectation so you can see the light at the end of the tunnel, and empower yourself to make it happen.
2. Choose a Bank Account Just for Your Down Payment
It’s tough to save money if it’s living in your primary checking account, and you’ve got easy access to it. Start off on the right foot by allocating a savings account specifically for your down payment savings, and keeping unconnected to your debit card.
Just don’t sock your money away in a shoe box. You’ll miss out on the opportunity to earn interest while you save, and you’ll have a harder time showing that the money has been seasoned, meaning it has been in your possession for 60 days or longer, making it yours in the eyes of lenders.
Saving is a mental attitude.
The more you can see the rewards of your efforts the more likely you are to continue saving. If you don’t have any savings and you start trying to save $80,000 the likelihood you get there in a timely manner is very low. If you set a reasonable goal and each month you see your savings account grow then you will be more inclined to continue contributing and you will be more likely to dump even more money into the account when you get things like birthday and holiday gift money.
Get in the right mindset and you’ll get there before you know it.
3. Optimize your budget
It’s hard to save money when expenses are high. Go over your current budget and organize it like someone who really wants to save for a down payment. This means looking at some wants versus needs.
You might be spending a big chunk on groceries and decide to shop at a cheaper store, or buy in bulk to save money. Get rid of excess expenses that you don’t need, like gym memberships you don’t use, or subscriptions you may have forgotten about that are auto renewing on their own.
Allocate the portion of budget you need for your bills and other expenses, then automatically transfer whatever you can into the savings account set up to house your growing down payment. If you don’t see it, it’ll be like it’s not even there to spend.
4. Find More Money
Saving for a down payment is a bigger deal than it was 20 years ago when home prices were lower across the board. Buyers today, especially first time buyers, are getting creative and finding money extra money beyond their monthly paycheck remainder to add to their down payment fund.
Poke around your life and see if you can find any extra cash in these popular places:
- Gift funds from family
- Borrow against or liquidate retirement accounts
- Liquidating life insurance policies a parent or relative may have set up for you as a child
- Selling unnecessary vehicles
If traditional methods have been exhausted and you’re still short, check out our suggestions for more unorthodox ways of saving for your down payment, and speed the savings process along.
5. Season your Funds
This is important: Give your money time to be considered yours. Lenders don’t like big chunks of money appearing out of nowhere, and any cash you use from your accounts toward your down payment on your home must be seasoned. Funds are considered seasoned when they have been in your possession for 60 days or more. Get your assets in there, and get them seasoning before you decide to make an offer on a home.
Believe it or not, saving for a down payment is a really achievable goal. In fact, we talk to people every day who have been working toward buying a house for months or years, and have reached their goal. And you can too!