5 Ways to Save for a Down Payment on a House

Many people look forward to buying a home. Luckily, saving for a down payment on a house can be made easy with a few helpful tips. Solarity Credit Union can guide you toward owning your own home by introducing you to ways to save more. With a healthy understanding of what’s required to secure a home loan, and the tools to create a good savings plan, you could be closer to owning a home you love than you thought.

Here are a few helpful tips for how to save for a down payment on a house.

1. Create a Budget

When figuring out how to save for a down payment on a house, one of the first things you’ll want to do is create a budget. Budgeting is a responsible way to limit how much money you’re spending each month and to have more money to put toward a down payment. It can allow you to save money without needing to make more money.

You can start your budgeting journey by figuring out how much you’re spending each month and separating those amounts by category. Examples of spending categories would include items such as rent, groceries, utilities, student loans, eating out, and so forth. Once you’ve figured that out, you can see if there is any wiggle room within those limits.

For instance, maybe you’re spending a little unnecessarily on eating out. Make your monthly budget for eating out $100 less than you typically spend and then use that money toward your down payment. If you take out a little bit from each category and stick to it for a couple of years, you’ll find that you’ve saved a significant amount for your down payment.

2. Open a Savings Account

Saving for a down payment is easy when you’re spending money and savings are separated. Keeping all of your money in one account can make it more tempting to use that money or give you the idea that you have more money to spend than you actually do. A separate account just for savings can keep your down payment money out of sight and mind until you really need it.

A great way to keep your down payment money separated from your spending money is to open up a savings account. A savings account can be created at your local credit union and give you a safe place to keep the money you don’t wish to spend. Solarity Credit Union offers members the option to open both a primary and a secondary savings account should they wish. Primary accounts are used by most members for general savings goals, while secondary savings accounts are a great option to have for more specific goals such as a down payment on a house.

Your savings account also has the option to make you money over time, as many earn an annual percentage yield (APY). Creating a savings account to help save for a down payment can contribute to your savings and get you to your goal that much faster.

3. Increase Your Income

Another simple way to help you save for a down payment is to increase your income. If you’re looking to save more quickly, increasing your income will help you to do that much faster than just saving and budgeting what you have.

When trying to increase your income, consider the talent and skills you already have. Side jobs can be easy to pick up if you’re already skilled in another profession. Part-time work is often available seasonally if you’re looking for something temporary, and you can always ask your employer for overtime if you don’t want to commit to two work schedules. You can also find ways to increase your income that don’t involve extra employment, such as selling the excess items in your current home.

Additional income can make a big difference in reaching your savings goals and expedite the process of buying a home.

4. Understand the Market

Saving for a down payment on a home is easier than many people think. While 20% used to be the standard that people put down for a home, times have certainly changed. Depending on your credit score, income, and a few other factors, you may be able to secure a home loan for 3% down or less.

Coming up with 3% to put down on a house is a lot more manageable than 20%. This can give potential homeowners the opportunity to get into their own homes years earlier than planned. There are even options such as USDA, VA, or no-down-payment loans that allow homeowners to buy a home with no down payment at all.

It’s a good idea to reach out to the financial institution you wish to work with to get a better understanding of how much you’ll need to save to make your homebuying dreams a reality. This information can give you even more momentum to save your money.

5. Eliminate Debt

There are many things that potential lenders will look at when deciding whether or not to lend you money for a home. One thing that plays a big part in that decision is your debt-to-income ratio. Lenders want to know that you manage your debt well and that you don’t owe so much each month that it would be hard to add on a mortgage payment. Though it may seem counterproductive to pay off debt as a way to help save for a down payment, it could be a wise decision to do so.

You can start with smaller debts such as credit cards. Credit cards are typically a lower form of debt than student and car loans. If you have outstanding credit card debts, spend a few months of savings on paying them off. Then, if it’s manageable, move on to something bigger, such as a car loan. You can either devote your savings to the funds or split them in half so that some is going toward debt reduction and the other half is going toward saving for a down payment.

Paying off your debt can make you a more appealing candidate for a home loan. So if you’re able to get rid of as much debt as possible before approaching a potential lender, you should do so. As a bonus, paying off debt can also improve your credit score, making it a great move all around.