6 Tips to Saving for a Down Payment
Before transitioning from renter to home owner, potential buyers must typically save between 5% and 20% percent of the home’s value for the down payment. The American Bankers Association is offering tips to help consumers prepare for one of the first steps in the home buying process – saving for a down payment.
Did You Know? Tthe target down payment is 20% of the home's value.
“Saving money for a down payment, while balancing life’s many other expenses, can be incredibly challenging,” said Frank Keating, ABA president and CEO. “However, with a few adjustments, consumers can put themselves on track to make a down payment on their dream home.”
ABA suggests the following tips to help consumers save:
Develop a budget & timeline. Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner. Make sure your timeline is realistic too. While some may be able to save in the matter of a few months, others may need a few years. How much house can I afford?
Establish a separate savings account. Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
Quick Savings Tip: Toss loose change and bills into a jar and watch the savings really add up!
Shop around to reduce major monthly expenses. It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
Monitor your spending. With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, movies, clothes, etc.) and instead put that money into savings.
Look into state and local home-buying programs. Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants. Contact your local banker for more information.
Quick Savings Tip: Each time you have a $5 or $10 bill in your wallet, toss that into your savings jar or account to really watch your savings grow!
Celebrate savings milestones. Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.
Don't forget to keep track of your progress!
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