As a prospective home-buyer who will be considering a mortgage, you will have to determine how to come up with a down payment for your new house. The standard down payment for a conventional loan is 20 percent; however, there are other loans that might be available to you, such as the FHA loan, in which you might only be required to put down 3.5 to 5 percent of the purchase price. While that might sound more appealing on the surface, keep in mind that when not putting down the standard 20 percent, you will be required to pay mortgage insurance (PMI for conventional loans, MIP for FHA loans). Since this is the case, and since FHA loans are not an option for everyone when purchasing a home, we are going to assume you are aiming to come up with 20 percent.
Presumable, you have been looking forward to, and perhaps even working towards, purchasing a home for quite some time. Whether that is the case or not, you have undoubtedly questioned how you are going to come up with the down payment. Here we will look at some of the top ways to secure your down payment.
First and foremost, adopt the mindset that above anything else, you need to save your money. It sounds over simplified, but there are ways in which to save monthly and put that money to use.
Transfer money to a special account.
After determining your monthly expenses, earmark a fixed amount of money each pay period to a special savings and do not use it.
Decrease your expenses. Below are some examples of ways to do that:
- Cable TV: Anyone that is still paying for cable television knows how expensive this can be on a monthly basis. Consider “cutting the cord” to take out this expense completely and look into a streaming service. If you are not quite ready for this change, call you cable provider and try to decrease your monthly package. You might find you are paying for a package you do not truly need or use.
- Electricity: While you certainly are not going to consider disconnecting your electric as you might your cable, there are ways to save on your monthly usage, lowering your monthly bill. If you currently own a house, you can start by getting an energy audit. A representative will come out and suggest ways in lowering your usage, and often replace older light bulbs with high efficiency bulbs. If you are currently renting, you can certainly ask your property owner to request an audit, or you can change the light bulbs yourself. Also, be sure you are doing simple things such as turning off lights and unplugging power cords when not in use. You might be surprised how much electricity is used by electronics (computers, printers etc.) when they are not in use but still plugged in.
- Oil: If heating your home with oil, consistently shop around for lower prices. Some oil companies will provide discounts if you sign up for automatic deliveries, but keep in mind that even with that discount, you might be paying more than you need to.
- Thermostats: If possible, invest in an automatic thermostat that you can program. Be sure to keep your temperature regulated in the summer and winter months, preventing the heat/central air from kicking on during the day when you are not home. You will find that saving on heating and air conditional helps to save money on monthly expenses.
- Eat at home/Pack your lunches: Instead of eating out, plan and/or prepare your meals ahead of time so you are not spending more money than necessary.
Sell items you are not using.
The perfect time to consider this is when you are planning to move. This is the time to go through your things and declutter so as not to have to pack items no longer wanted or needed. You might find gently used items, or even new items, that are of no use to you any longer but that other people might be willing to pay money for. You see people selling purses, jewelry, clothing and furniture all the time online making extra cash, and every little bit helps!
Get a Second Job.
Depending on your personal situation, you might want to look into acquiring a second job. Whether it be out of the house or making extra money off a hobby or skill you might have, the extra income can be put towards your down payment.
While you might look forward to your yearly getaways, temporarily put a hold on vacationing and while trying to save.
Pay off your higher interest credit cards.
Yes, this might seem like a daunting task, however you could be throwing away hundreds more on your high interest credit cards by paying just the minimum amount due each month. Paying these off will not only save you money in the long run, but you will be getting them off your credit report before applying for a mortgage.
Invest your savings in a money market account or a CD.
You will find your return is higher than that of a standard savings account.
Take a loan from you company sponsored 401K.
Though taking a loan out might sound counter-productive when trying to save, a loan from your 401K is usually a penalty free way of borrowing from your retirement, and you are paying it back to yourself through payroll deductions. Unlike other types of loans, this will not negatively affect your credit score.
While none of these suggestions alone will save you the thousands you will likely need for a down payment, with diligence the money you can save by combining the above suggestions will certainly add up to a substantial savings, taking you one step closer to owning your dream house.