Just a few years ago, home buyers didn’t need to worry as much about saving a down payment for their home. Some programs even existed that allowed buyers to finance the entire cost of the home. Most lenders today, however, would like to see you come up with 20% of the homes principal as a down payment. You will also have closing costs and other expenses that often surprise first time homebuyers.
If you haven’t started your savings account yet, don’t despair. The money will accumulate much more quickly than you imagine if you follow a few simple principles.
1. Increase Savings by Cutting Back on Luxuries
Instead of eating out five times a week, eat out once. The money you saved from the other meals can go directly into a CD or savings account where it will grow interest. If you figure the average cost of a sit-down meal and a drink is about $25 per couple, you’ll save $100 just in the first week.
Now is also the time to avoid taking an expensive vacation or purchasing a new vehicle. There will be plenty of time for vacations and acquiring new pieces of art work, furniture, or transportation once you’ve saved enough for your mortgage down payment.
2. Check out Books and Rent DVDs
Become familiar with your public library. When a new book that catches your eye appears on the shelves of a local bookstore, simply log in to your library account and place a “hold” on that book. No, you won’t get it as fast as if you’d bought it in the store, but you will get to read it at no cost.
The same principle goes for DVDs and Blu Rays. Join a mail order club where you pay one low monthly fee and get to keep the items as long as you like.
Even if you only buy 3 books and 5 DVDs per year, you’ve still managed to save yourself about $200.
3. Buy Non-Perishable Items in Bulk
When you buy in bulk, it may look like you pay more upfront, but in fact you’re getting each unit at a deep discount. Only buy the things you know your family will need such as toilet paper, paper towels, trash bags, shampoo, and soap. Unless you have a large family with lots of aches and pains, it’s better not to buy over-the-counter medications in bulk, because they tend to expire.
4. Pay Off Other Loans, Especially Unsecured Debt (i.e., Credit Cards)
Attack other loans aggressively. Not only will you save on monthly payments and interest, which are then available to be poured into your down payment or mortgage, you also make your credit profile look cleaner. As far as lenders are concerned, past behavior predicts current behavior, so if you show a track record of paying off loans, you will benefit from it.
5. Get a Second Job
Nobody wants to think about working more hours than they already are, but if you could manage to work a few extra hours per week, even if it’s only for a few months, you’ll watch your account grow by several hundred dollars each month. Before long, you will have saved enough to make the down payment on the home you’ve always been wanting.
That’s certainly worth a little extra work.