When you finally decide that you want a place of your own there is one big savings goal you need to have achieved – the down payment for your first home.
This means that you have to start saving money before you can get a place of your own. To make sure you’re set up for success, here is a list of tips that will help you save for a down payment on your first home.
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How Much do I Need to Save for a Down Payment?
When starting to save a down payment you will need to have a minimum of 3.5%. This is the amount required by FHA, to get a conforming mortgage you will need a 5% down payment or more. While these amounts are set amounts, it’s encouraged that you save up additional money so that you have the ability to adapt should prices go up or you need additional funds when it comes time to take possession of the house.
The best way to do that is to start figuring out your down payment is with an online calculator. You can use our down payment calculator to see how much of a down payment you will need on your house.
How to Save a Down Payment on a House in 3 Easy Steps
Open a Separate Savings Account
If you have already found out how much you can afford in rent, then you should have some money every month to put aside.
It will be very tempting to keep all your money in one account and just do the math in your head. This won’t work. You need to keep your down payment separate from all your other money because when it’s all lumped together there’s a better chance that you will spend it on other things.
When you keep your down payment money separate you can watch it grow, and you are less likely to touch it when the inevitable unexpected expenses come up.
With this separate savings account, you can give it a purpose “House Down payment” and start putting money into it right away and an on ongoing basis. The best thing you can do is make this account easy to get set up, but hard to take money out of quickly.
Decide How Much You Need to Save
This is a crucial step, you can use our down payment calculator if you need to find a certain amount. Once you have your amount you can use the savings calculator with interest to figure out how long it will take you to hit your savings goal.
Using these two calculators you will know how much you need to save and how long it will take you to reach that goal.
Start Saving Money Every Time You’re Paid
If you are serious about saving up for your down payment then you need to make sure that money gets put into savings before you ever touch it. Some workplaces will do this for you, if you are able to take advantage of that please do!
The best way to start saving up is to decide on a minimum amount you will put away every pay-check and make it happen. We go into this more in our
Make Your Down Payment Savings Automatic
It’s a good idea to set up an automatic transfer from your main account to your down payment savings account. This takes the pressure off you to remember to do it every payday. Just set it up once and let it happen automatically after that, then watch your savings grow!
Let’s face it, there will always be a reason not to save that money. By setting up an automatic transfer you have a much better chance of not using that money for something else.
Bonus Step:Accelerate Your Down Payment
Start adding to your down payment fund whenever you get extra money. This can speed up your results and get you onto the fast lane of down payment savings.
If you would like to know more about how you can speed up your down payment, you can check out our Down Payment Accelerator Guide.
How to Save For a Down Payment While Renting
When you are renting you are likely feeling a little more of a pinch when it comes to saving for a down payment. The good news is it can still be done. Taking on a roommate, or doing an Airbnb with a room in your place (as long as your landlord allows it) can help you increase your savings rate. There are other ways to save, but the key is to get creative with your ability to make and to save extra money.
Don’t Touch Your Down Payment
From the day you open your separate savings account, make it a rule that you will never touch the money in that account.
Pretend like it’s disappeared from your life and the only way you will see it again is when you are buying your first home. This rule is a must for saving a down payment. Otherwise, you will be tempted to use the money for other things and this will hurt your down payment, or worse wipe it out altogether!
Make Your Saving Visual
It’s best to keep your goals in front of you. This will help keep you motivated. When we were saving up for our down payment we had a down payment worksheet and kept at it until we reached our goal.