Have you been wanting to leave the world of renting a home behind and become a homeowner, but find it difficult to put the funds together for the down payment? Our Folsom mortgage team knows what a struggle it can be to come up with the down payment for a home. This is why we suggest starting to save for the down payment early. Here are some tips to get you started.

Are You Financially Ready?

Before you do anything, you need to ask yourself if you are financially ready to become a homeowner. It’s a long term commitment and one of the biggest expenses you will take on in your life. Being ready to buy a home means being as debt-free as possible and having at least 3 to 6 months in emergency funds saved. It will also raise your credit score and give you a better chance of being approved for a good mortgage package with good interest rates.

Saving for a Down Payment

The first thing toy should do is set a goal for your down payment plan. This means knowing how much you will need to put aside. You should plan to put aside at least 10% of the home’s value. 20% is even better because you won’t get stuck having to pay for private mortgage insurance. You also want to aim for a monthly mortgage repayment that isn’t more than 25% of your monthly income. If you stick to your down payment savings plan, you could have the funds that you need in about 2 to 3 years’ time.

You will also want to open a savings account specifically for the down payment. Go with an account that will give you some interest but not take money away from your funds. Like a money market account.

Tighten your Budget

Going over your budget is an important part of preparing to start saving. You will want to look at cutting some expenses down where you are able. This means paying attention to your spending habits and foregoing non-essentials, such as eating at home instead of eating out, cutting out impulse buying, buying generic brands when you go food shopping, and foregoing things like gym memberships. You will be surprised at just how much you can save by cutting down on the non-essentials.

Take a Break on Retirement Savings

If you have been putting money aside for your retirement, you may want to pause that for the time you are saving up for the down payment on your home. Let’s say you have been investing $500 each month for retirement. If you redirect those funds to saving for your downpayment, you could have about $12K saved up within 2 years’ time.

Tip: Refrain from cashing out or borrowing funds from your retirement accounts. You will end up having to pay penalties and taxes and it can have a negative impact on your retirement savings’ long-term growth.

Find Ways to Boost Your Income

Another step you can take is finding something on the side that helps boost your income. Whether it’s getting a second job or using your skills to do some work from home, you can end up saving a lot quicker. Think about what skills you have. You could offer them as a service to others, like accounting, teaching, babysitting, or looking after pets when someone will be out of town. You don’t have to run yourself ragged with a hectic second or side job.

Other Ways to Save

There are other things that you can do to help save up for your down payment quicker:

  • Forego vacations for the time. This could save you $2,000 to $3,000
  • Sell some of the extra things lying around the house that are just collecting dust, You can use one of the many online sites to seel things or have a yard sale
  • Put any bonuses or pay rises towards your downpayment savings

It may seem hard to cut out those extras that you are used to, but keep in mind that you are saving for a worthwhile investment. Once you buy your home, you can look at adding those extras back into the budget.

If you have questions about mortgages and want to get an idea of how much you will need to put aside as a down payment, give our Folsom mortgage team a call today.