With real estate prices continually rising, buying a home can feel like an impossible task from a financial standpoint. The down payment for a new home is often a significant amount. Fortunately, there are several ways to accelerate saving for a house through certain tried-and-tested strategies. Using these solutions, coupled with time, discipline, and commitment, individuals aspiring to purchase their dream home within a few years can achieve their goals without hassle.
1. Build a realistic budget to save
For people looking to save large sums of money, budgeting is usually the first step towards achieving that objective. Budgeting can be successfully done by following certain steps.
First, it is important to gather comprehensive information about one’s monthly income. This includes the income earned from jobs or businesses, interest accrued from savings accounts, fixed deposits or recurring deposits, and any other forms of cash inflow. It should also include the money generated from family-owned properties.
The second step is to monitor recurring expenses. This includes unavoidable payments made towards rent, groceries, student loans, and other utility bills. In addition, it is important to record non-essential payments made towards dining, entertainment, and habitual purchases.
The third step involves identifying expenses that can be reduced or eliminated and exploring avenues to increase income.
When one’s planning to buy a home, one needs to know the three important elements that may need to be considered.
Down payment – This amount can be around 0% to 20% of the home’s total price.
Closing costs – This amount can turn out to be about 3% to 6% of the loan amount.
Moving costs – This cost may vary on several factors like movers hired and distance between the locations.
2. Set up a separate savings account
Upon determining the down payment amount, try to set up a savings account where one can make monthly contributions every month. Automate the savings if one wants to be more focused. Contact the bank representative and request an automatic bank withdrawal or transfer from the primary account to the savings account. Ensure to schedule the withdrawal/transfer on the payday to prevent defaulting. This process can help those who face challenges in managing monthly income. The accumulated money over a period of time can be used for the down payment easily.
3. Reduce unnecessary expenses
With the advent of online banking, individuals unknowingly tend to spend on things that are not required. So, one needs to be aware and track their spending habits and consider drawing those amounts to their savings account for the down payment fund. Those who are prone to impulse buying need to cut down their purchases consciously. Cancel subscriptions and unsubscribe email notifications so that one is not tempted to make unnecessary purchases.
Some people constantly spend money on gas, vehicle maintenance charges, parking fees, and other vehicle-related expenses. To significantly bring down one’s daily expenditure, one can stop the use (or at least reduce the use) of private vehicles. Try to cycle, walk, or use public transport for daily commuting. This can be a great opportunity to save money for a house down payment.
4. Use the downsizing alternative
Downsizing is a useful alternative to save a lot of money in a short time. This option involves saving more money to fill up one’s down payment funds by reducing daily expenses and living below one’s means. Downsizing involves openly embracing minimalism by strictly focusing only on the things one needs. Any superficial purchases need to be avoided in the process. The amount of money saved through minimalism and active downsizing can be diverted to one’s savings account.
Downsizing seems like a simple and obvious thing to do, but it requires great reserves of self-control and clarity of thought. Individuals who wish to save enough for their down payments need to forego many desirable purchases.
5. Start a side hustle
One of the ways to truly accelerate saving for a house is by adding new income streams into one’s daily functioning. This can be done by making investments in stocks, commodities, or low-risk-high-return mutual funds. Another proven way to add income streams is by starting a side hustle. This can be done by individuals joining the on-demand gig economy, which includes picking up freelance work, opting for paid tasks such as pet-sitting or walking dogs, testing apps and websites, or driving for a ridesharing company.
The gig economy makes it easier than ever for people to make money through the channel of side hustles. It also makes a great way to bolster one’s down payment savings plan and funds.
6. Check state and local home-buying programs
Purchasing a home can be especially daunting for first-time buyers. For such individuals, there are several first-time homebuyer savings tips and programs initiated by the government itself. Many states, counties, and local governments offer different savings programs and funding initiatives for such individuals. Many state housing programs combine closing costs and down payment assistance programs with home mortgages that have affordable interest rates. Some states also provide tax credits on federal tax returns. These programs provide an opportunity for first-time home buyers to own a house in specific geographical locations.
7. Celebrate savings milestones
Building a fund to pay off one’s home purchase down payment is a formidable task. At some point during the process, it is easy for individuals to lose hope, get discouraged, and, in a worst-case scenario, abandon it entirely. To lift one’s spirits, individuals must try to celebrate any kind of savings or non-expenditure they can pull off. If one has successfully saved $40,000, one can consider treating themselves to a nice meal or an intimate family get-together for every $5000 saved. That said, while celebrating, one must be careful not to undermine their savings efforts.
