What’s the most difficult part of buying a home, especially for first timers? Buyers who’ve been through the process will often point to the challenge of saving for a down payment.
This isn’t surprising. Say you find a home for $200,000. A down payment of 10% is $20,000, which is a lot of money to save. Even if your lender asks for just 5%, you’re still on the hook for the not-insignificant sum of $10,000.
Fortunately, saving for this chunk of change, though an intimidating process, is not impossible. There are ways to save enough money for a down payment in just a year.
Here are some strategies that can help you quickly gather those funds. Just be warned – they all involve more than a little pain and sacrifice.
Cut Unnecessary Spending
Sheldon Brown, a mortgage broker with Toronto’s Mortgage Architects, said that he understands what a challenge it can be to save money for a down payment. Unfortunately, he said, there is no secret to saving that money quickly.
The best way to do so? Put a limit on your personal spending.
“I would say that what has worked best for my clients was to start by examining their discretionary income and adjusting spending and saving behaviors,” Brown said.
Again, that sounds obvious. But it’s difficult to save the thousands of dollars you’ll need if you’re constantly spending on movies, dining out and traveling. When saving for a down payment, it’s time to cut down on other spending, even if that is a bit painful.
It’s time to remember that your new goal is to have that home, and saving for a down payment needs to take precedence over trying that new Italian restaurant.
Find Additional Work
Nicole Divito, author of the CheapWineandCoffee.com blog, suggests another painful tip – work more.
Saving for a down payment quickly might require you to ditch your current job and find one with a higher salary. It might also require that you take on a side job in addition to your full-time one.
If this sounds like the recipe for a tough, boring year, it might be. But again, if your goal is to get into a house in a year, these might be sacrifices that you need to make.
“Even if you love your job, if your plan is to buy a good home in a good neighborhood with good schools, you can’t afford to live paycheck to paycheck,” Divito said. “I loved my first job out of college, but I wasn’t making any money and I couldn’t save. Looking back, I’m glad I left and even wish I had done it sooner.”
Divito said that if you can find a job that offers bonuses, take it.
“Nothing helps you save faster than a big chunk of change once a year,” Divito said.
Downsize Your Living
Here’s a bit more pain; If you really want to save quickly for a down payment, you might consider moving back in with your parents, if they’ll have you.
That sounds unpleasant, but Phil Risher, author of the YoungAdultSurvivalGuide.com blog, said that this strategy worked for him when he needed to save a big chunk of money. Risher moved into his parents’ basement when he made a commitment to paying off his debt and saving enough money to buy his own home.
“If you can take advantage of a temporary low living-expense opportunity, I would highly recommend it,” Risher said.
Of course, a living arrangement that saves you money doesn’t have to mean living with your parents. Maybe you live now in a costly apartment. It might make financial sense to move to a lower-cost one when you’re saving for your down payment, even if you have to move to a less-desirable neighborhood.
Just think of how much help those dollars that you aren’t spending on rent can be in your efforts to build that down payment fund.
Take Advantage of the On-Demand Economy
Taking a side job is one way to earn extra income. Participating in the online on-demand economy (requests for service through apps or websites) is another, and it might offer more flexibility.
Maybe you can drive a car for Uber or Lyft or rent out a room through Airbnb to earn some extra cash that you can then deposit into your down payment savings fund.
“It’s a perfect way to bolt on extra income in addition to your full-time job, as most on-demand platforms allow their suppliers to participate in a flexible fashion,” said Bryan Clayton, chief executive officer of Nashville-based GreenPal, an on-demand company that provides lawn-care services to clients.
Clayton said that he has seen firsthand how vendors on his system go from zero dollars in savings to more than $20,000 by working part-time with his on-demand company.
“I have even heard stories of suppliers buying their first home after finding success on our platform,” Clayton added.
Live on One Salary
Do you and your partner each work? Then Divito says it might be time to start living on just one of your salaries. You can then save the other salary in an account set aside specifically for your down payment funds, she said.
Of course, this only works if you can actually afford to live on that one salary, which can be challenging in bigger, more expensive cities.
Have you saved enough for a down payment? Are you working toward saving for that goal? What are some things you’re doing today to make homeownership a reality tomorrow? Let us know in the comments below!
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