Thinking about buying a home but have some anxiety about funding the down payment? Read to learn myths versus realities of down payment costs, as well as helpful savings tips that will turn your dreams of home buying into reality.
Down Payment Myth v. Reality
You don't need 20% down to settle down.
Due to the traditional 20% #downpayment of old, many people give away money in rent longer than necessary thinking they could never afford to own their own house. This is not the case! There are many down payment options to help people of all income levels experience home-ownership today.
Myth: I need $20,000-$30,000 for my downpayment.
Reality: Your down payment will be a percentage of your home's total sale price. This can range from only 3% upwards of 20% depending on loan type. For example, for a $100,000 home 3% is only $3,000. Plus, some qualify for down payment assistance programs which make this even less.
Tips to Save for a Down Payment
1. Set a recurring transfer to savings each month
2. Lower your expenses
3. Consolidate high interest debt
4. Save tax refunds
5. Skip vacations for a year
6. Ask for funds in lieu of birthday gifts, Christmas gifts, wedding presents, etc.
7. Borrow from a retirement plan
8. Make it a team approach
9. Add extra shifts/Get a second job
10. Ask your mortgage broker about down payment assistance programs
Savings Tips Elaborated
A few simple steps will allow you to save for your down payment in no time at all.
1. Recurring Transfer to Savings: Seem simple? It is! Anyone can apply this tip. Start today! Set up a recurring transfer to your savings account and do not touch that money. Start small - $25 a month. Gradually increase this by $5 or $10 in a month or so. If you save just $50 a month, that will be $600 by the end of the year. If you can manage $100 monthly, you are already up to $1,200 by year's end.
2. Lower Your Expenses: This goes hand in hand with item one. The more you can cut back, the more you can save. Review your budget to see where most of your money is going. Could you lower expenses by meal planning and cooking at home rather than on the go? What about using your dusty coffee pot instead of your weekly (or daily!) coffee run? How much do you pay for cable? With so many low-cost streaming options these days, you may be able to cancel cable altogether. Look at your #budget with an open mind and see where you can sacrifice short term splurges for the long-term stability and investment of owning your own home.
3. Consolidate High Interest Debt: Debt consolidation combines all of your high-interest debt, credit card bills for example, into a single payment with a lower interest rate. By consolidating, many people are able to reduce their total debt as well as lower their monthly payment. Debt can also be reorganized in a way to help you pay it off faster. If you are able to reduce your monthly payment, you can tuck the savings away each month to put toward your down payment.
4. Save Tax Refunds: When tax time comes around, many of us receive a refund of hundreds to thousands of dollars. We also tend to spend that money all too quickly. Instead, add it to your savings account and don't touch it! This is the perfect way to cushion your down payment.
5. Skip Vacations for a Year: I love a good vacation. We all do. I also know that between gas or airfare, hotel, attractions, and food vacations add up quickly. Make a commitment to skip vacations for a year. Transfer what you would have spent to savings. Then, explore free events in your city to provide the excitement and revitalization typically received during a vacation. You'll thank yourself in the long-run!
6. Ask for Money in Lieu of Gifts: Have a birthday coming up? A wedding? Christmas? Ask your family and friends to donate whatever they would have spent on gifts to a down payment fund. The trick to not making this seem tacky? Share your hopes and dreams with those you love. For example, a thoughtful card or email might read, "This year, I am working hard to make homeownership a reality. I want to be paying myself instead of giving money to my landlord. I want stability in this new phase of life as I prepare to start a family. I am diligently saving money each week, cutting back on expenses, and sacrificing everyday luxuries to make this goal a reality. As Christmas comes around, I would love if you could help me realize this goal. In leiu of any gifts, I would be humbled if you would instead contribute any money you were planning to spend to my down payment account. Hopefully, when next Christmas comes around I can have you over for cookies and hot chocolate in my new home. Thank you!" You'll be surprised how many people would love to help you achieve your goals once they know what they are!
7. Borrow from a Retirement Plan: A house is an important purchase and a primary step in creating personal and generational wealth. What about borrowing from a retirement plan to make that step reality? If you contribute to a retirement plan, and/or your employer contributes on your behalf, you may be able to borrow funds to put toward a down payment.
8. Make it a Team Approach: If you are married, have children, or are surrounded by family and friends, involving them in your plan may make saving for your down payment easier. Let your kids browse pictures of prospective houses. Talk to them about their new room, their new backyard, or their new neighborhood. Kids can understand the concept of sacrifice - giving up something good in the short-term (like several gifts at Christmas) for something better in the long-term. If your close family and friends know your goals, they may be less likely to tempt you with shopping outings and expensive dinners. Having the support of your team will make saving easier. Remember, #ittakesavillage
9. Add Extra Shifts or a Second Job: Sometimes you cut back expenses everywhere you can, and you still need a little extra. Bring in more income by working extra hours. If extra hours at your current job aren't possible, consider a second part-time job or seasonal employment. This extra income could be just the boost you need for your down payment!
10. Ask About Down Payment Assistance Programs: State and Federal governments are regularly unveiling programs to support with down payment assistance, especially for first-time homebuyers. A licensed loan officer can share more about any options that may be available. Getting this information at the start of your home-buying journey can save you stress and anxiety worrying about down payment funds you may not need. At O Capital Group, our licensed loan officers are happy to provide a free, no obligation consultation to anyone starting their home-buying adventure. Call today at (602) 492-8930.
Potential Down Payment Savings After One Year
Take Your Next Steps Today
Taking your next step today will bring you closer toward the reality of homeownership.
If you are thinking about buying a home in the future, talking to a licensed, professional mortgage expert is your first step. They can give you an honest assessment of where you currently stand, and suggest some steps to make home buying a reality.
At O Capital Group, we are happy to provide a no cost phone or in person consultation. Call (602) 492-8930 today to connect with someone who can help you learn more.
Or, get started on your own through Blink - a safe, secure online loan application you can use on your own time:
Keep Us Posted On Your Journey Have you started saving for your down payment? Let us know an accomplishment you've had, or a challenge you are working to overcome. We'd love to learn from your journey! Leave us a comment below.
At O Capital Group, we make home loans easy!
Call today: (602) 492-8930
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.