How to Save for a House Down Payment
So, you have made the decision to become a homeowner. Congrats! One of the first steps to achieving your homeownership goal is to save money for your down payment.
A down payment is the money that you pay upfront to purchase a home. The difference between the sale price of the home and the down payment amount is paid for via a home loan. The higher your down payment, the lower your loan will be. Unless you are utilizing a VA or USDA loan, most home loans require a 3.5%-20% down payment. Check out our tips below on How to Save for a Down Payment on a House.
Set up an automated savings plan. Arrange with your bank to have a certain dollar amount or percentage of each paycheck automatically deposited into your savings account each pay period. This way, the money is put away before you can spend it and you don’t risk forgetting to transfer the money over yourself. Obviously, the larger the number that you set to be deposited each month, the sooner you will have your down payment amount. So be sure to take a look at your monthly spending and save the max amount that you can afford to spare. BONUS TIP: If you get any bonuses, tax refunds, raises, or side-income, put all of it into the down payment fund!
Utilize an IRA. Did you know that you can withdraw up to $10,000 penalty free from your traditional IRA or Roth IRA to use towards the purchase of your first home? You will have to pay income tax on funds withdrawn from a traditional IRA, but you will not have to pay income tax on funds withdrawn from a Roth IRA. Roth IRAs must be at least 5 years old to qualify for this exemption. Withdrawing from your IRA can have major tax implications and will reduce the funds available to build your wealth for retirement, so be sure to consult with your CPA first.
Get a Side Hustle. Find a way to make additional money on top of your normal income and put all of this additional income into your down payment fund. There are a lot of options available for ways to make extra income. Do you like to make crafts in your free time? Start selling your creations on Etsy. Own a car? Consider driving for Lyft or Uber on nights and weekends. Great with kids? Offer tutoring or babysitting services. You can also check out the listings on Taskrabbit where people look to hire others to help them move, clean, put together furniture, or run errands.
Put Your Money to Work. Since standard savings account generally make less than 1 percent interest, consider low risk ways to use your money to make more money. Some options include high-yield savings accounts, money market accounts, and certificates of deposit. You want to make sure that your money is there when you need it, so be sure to consult with a financial professional before making any investments.
It is never too early to start planning for a home purchase. If you have any questions about the home buying process, don’t hesitate to reach out to us at [email protected].