3 Crucial Steps to Saving for a Downpayment
There are a wide variety of ways that you can save for a downpayment on a home, some have been proven to work better than others, and some take a bit longer, but there are lots of options for hopeful homebuyers to choose from. Here is a list of some great ways to save for you downpayment on a home. Keep in mind that although these tips are for saving for a home, many of these tips can be used to save a lot of money for almost any purpose, whether you are trying to pay off debt, build a savings account of put money towards your retirement. These tips can be helpful no matter what your situation.
Figure Out Your Priorities
The reality is that when you are trying to save for something important—like the downpayment on a house—you have to sort out your priorities. This is a situation where taking a look at your current finances, and where your money is going is absolutely vital. Do you go out to eat all the time, or go on lots of expensive vacations? Do you “treat yourself” to overpriced coffee multiple times a day? If you want to save for a downpayment, it is crucial that you figure out where your priorities are and create an realistic budget based on those.
What do I mean by a realistic budget?
A realistic budget is one that takes your regular expenses into account, as well as the fact that you still need some sort of entertainment and social life. Your budget will not necessarily be perfect the first time around, and don’t get discouraged – the goal is to be able to save as much as you can while still paying off debt, bills and still living your life. Ideally, this will mean cutting out a few extravagances in order to put more money away for your downpayment. A great example of this is simply finding cheaper things to do. Examples include
Going out to eat less – or going to less expensive restaurants
Taking books out at the Library as opposed to buying
Investing in Hulu or Netflix as opposed to paying for a full cable package
Pay off Debt
The reality is that if you try to apply for a mortgage with too much consumer debt, you will not qualify. Unfortunately, for many people to qualify for the house that they want, they usually have to pay down their credit card debts before being approved.
One of the easiest ways to do this is to pay off your smallest high-interest debt first. Then take the minimum payment from that debt and use it to help you pay off the next small debt that has the highest interest rate. This will create what is known as the “snowball effect”. Once you have that one paid off, the two minimum payments that you used to pay for those smaller debts can help you pay off your next debt faster.