Understanding the home buying process before you start shopping for a home can make it easier.
Down payments are the key to buying a house for the majority of the population. However, for many of us, that’s easier said than done. With that in mind, I’ve brought you four easy tricks to help you achieve your savings goals. Read them over so that you can get started saving ASAP.
The first step towards saving for a down payment is getting clear on your goals. It’s easy to say you’ll start saving, but without a plan that clearly outlines how much you aim to save and how often you intend to add to your fund, it can be difficult to get started.
These days, all you really need for a down payment is 3% – 5% of the home’s purchase price. That said, if you aim for a higher number – like the traditional 20% – you’ll be able to avoid paying extra costs like private mortgage insurance (PMI).
Particularly if you’re saving towards multiple goals at one time, having separate savings account for each one can help you keep your finances in order. Designating one account as your down payment account will make it easy to keep track of your progress and may also help to deter you from spending the money on other things.
If you don’t have an account ready and waiting for this purpose, consider the following as you look at where you may want to open a new account:
If you’re new to saving or have trouble setting money aside, utilizing an automatic savings plan may be your best bet. With these, you specify an amount of money that you’d like to have transferred from your checking account to your designated savings account at fixed intervals. (For example, you could set yourself up to put away $1,000 each month.) Once you’ve set it up, the transfer is done automatically so you don’t even have to think about it.
That said, this type of savings plan works best for people that have consistent incomes. If your income varies or you’re unsure of how much money you’ll have in your account at any given time, you may be better served by doing the transfer manually whenever you’re certain you have the funds in hand.
Finally, take advantage of the opportunity to save any large windfalls or unusual influxes of money. This includes things like tax refunds, yearly bonuses, or an inheritance.
While putting the money away may not seem like the most fun option, keep in mind that it’s helping you take an extra step towards a big goal. It can also assist you in staying on track with your goals if you encounter an unexpected expense one month and can’t afford to make your usual savings contribution.