5 Ways to Save for a Home Loan Down Payment
If you don’t have the cash to pay for a home upfront, you’ll likely need to apply for a loan, which means you’ll need to be able to make a down payment. A down payment is the percentage of your home that you pay for upfront. Depending on your current finances, it could take you years to afford the down payment needed for a home. Many lenders require anywhere from 3% to 20% for a down payment before they’ll approve your loan. For instance, if your potential home is $200,000, a 10% down payment would be $20,000.
Planning out your finances beforehand is the best way to ensure you can buy a house when you’re ready to. Credit unions like Rivermark want you to be financially prepared so that the chances of receiving your loan are high. To prepare yourself for this large investment in your future, you should start saving now.
There are many ways you can begin saving for your home loan down payment. Some ways will be easy, while others will take longer and require more sacrifices. So long as you’re committed to owning a home one day, these small sacrifices will be well worth it to accomplish your goals. Here a few ways you can start saving for a home loan down payment today.
1. Look into Savings Account Options
A savings account is a good way to put aside money, but what if your account could do more than just hold your money? With the right savings account, you could be earning interest on your balance, which can add to the money you’re saving toward a house. If you’re unsure whether your financial institution provides these types of money-building savings accounts, look into it. If not, you can find a credit union that does.
Rivermark offers savings account options and checking accounts that earn interest to help your money grow. Depending on how much money you have to deposit, this could be a great way to save money for your home loan down payment over a few years.
If you’re looking at other interest options for your balances, you can consider opening a certificate of deposit, also known as a CD. With this option, you agree to a term for the account and receive a higher APY than you would for a typical savings account. The money is untouchable for the term you agree on. This is a great way to let your money work for you while you’re saving, especially if you open a certificate of deposit years before you plan to buy a home.
2. Take Advantage of Windfalls
In the financial world, a windfall is a large amount of money that you didn’t expect to receive. They come in the form of monetary gifts for your birthday, bonuses from work, weddings, and tax refunds. For most people, receiving these windfalls is a pass to purchase something extravagant, but surpassing that urge can really benefit you when you’re saving for a house. Saving that money and using it toward your down payment can take months, and even years, off your predicted savings time frame and get you into your home much faster.
3. Lower the Interest on Other Loans
The money you currently use to pay interest on other borrowed money could be much better used to save for a home loan down payment. Every little bit counts when it’s going toward your dream home, and the money you save on interest can add up quickly. If you have auto loans, this could be a good option for you.
If the rate you were given when you started your loan was high, and you can find a financial institution that will offer you something lower, you can transfer the loan to receive a better rate. This process is called refinancing, and doing so will allow you to take out a new loan to pay off the previous loan. Once you refinance, you can use the money that you would have previously spent on interest to save for your home loan down payment.
4. Skip Big Vacations
There are many sacrifices that can be made when you’re trying to save for a home, and one that can really cushion your pockets is skipping large vacations. People spend upwards of $1,000 on vacations every year, with that number increasing as your family grows. Money toward hotel accommodations, food, activities, and souvenirs can add up quickly.
Though it may seem like too big of a sacrifice, skipping your vacation for the year can help you save thousands toward your home loan down payment. You can still enjoy a vacation with your family on a smaller scale. Try to look for local attractions that are close enough that you can return home that same day. You can also look for free things to do, such as hiking or going to the beach so that you can create memories with your loved ones while still being frugal.
5. Consolidate Credit Card Debt
Every month that you don’t pay off the full amount from your credit card, the remaining balance is subjected to interest. It’s common to not be able to pay the full balance every month, but if your credit card interest is high, you could be losing more money than you think.
A great way to stop losing with credit card interest is to transfer the balances from your multiple credit cards onto whichever card has the lowest interest rate. Sure, the balance altogether on the card will be a lot higher, but the interest you're paying will be significantly lower, especially if you’re going from a rate percentage in the twenties to something in the teens. Better yet, work to pay off any credit card debt before you start looking to buy, and the money you’ll save on interest can go toward your down payment.
Have Questions About Home Loans?
Our home loan resources page can help you make informed decisions as you prepare to purchase a home or apply for a home equity loan. And, as always, you can call Rivermark and speak directly to a mortgage expert by calling 503.906.9497.