Saving for a mortgage down payment on a house can take a lifetime.
A down payment is the amount of money that you need to be able to come up with to get a home mortgage. It acts as a kind of insurance for your mortgage lender and helps dictate the terms of your mortgage. Your mortgage payments take care of the rest of the cost of the house over a certain period of time.
A down payment can range from anywhere in the ballpark of 5-15% (or more) of the cost of the home you want. Unfortunately, this is almost always still a huge sum of money that will take you (and your partner, if you have one) years to save for.
In this post, we’re going to talk about the different ways that you can save for your mortgage. Whether it’s cutting costs in other areas, getting creative with budgeting, or putting money away slowly, little things will add up and let you hit that magic number a little bit quicker.
Buying a house doesn’t have to drain you financially. If you’re smart about saving, you can make it happen comfortably. Let’s talk about savings!
1. Have the Numbers Crunched
Before you start saving, have an understanding of the number that you’re aiming for. You can do this by talking to your mortgage lender and discussing your options. A higher down payment will give you better terms on your mortgage, but it might take longer to save for.
The lowest down payment, probably somewhere around 5%, will give you higher mortgage payments, interest, etc. With that, try to envision the largest feasible number that you can and shoot for that as your down payment number.
If it’s a $250,000 house, a 15% down payment would be $37,500. It’s a lot of money, but follow these savings ideas and you’ll be able to get their quicker than you think.
2. Set Up a Fund
After you figure out how much the down payment of a theoretical house will be in total, you should break it down into basic monthly payments. Set aside at least this much money every month, so that you have a general idea of how long it’ll take to raise the funds for the down payment.
Then, set up a housing fund where you can put all of these monthly payments and leave them there untouched.
3. Cut Out Unnecessary Spending
You won’t be able to live the lifestyle that you’re used to living if you plan on buying a house. You’ll have to cut out any frivolous spending like fancy dinners, expensive European vacations, and your daily trip to the nice coffee shop.
If you go out for drinks, spend more nights in. If you smoke, get the cheapest cigarettes (or try to quit). Just try to cut out anything that you don’t need to survive, then you’ll start to notice a little bit more extra cash that can go into the house fund.
4. Set Aside Anything Extra
Any extra income that you get, put in the down payment fund as well. Year-end bonuses from work, inheritances from distant relatives that have passed, and cash gifts from holidays and birthdays should all go directly in the bank.
It might feel a little too strict at times, and you should let yourself experience the finer things in life once in a while, but you’ll notice a big difference. Between cutting out spending and setting aside little income boosts, you can shave months off of your down payment saving.
5. Tap Into Other Savings
This isn’t necessarily advisable, but one option is to tap into other savings accounts to raise funds for the house. Not just your regular savings account, but you could also borrow from your retirement fund if you’re on the younger side.
You can borrow a significant amount from your RRSPs and take a big chunk out of your down payment when you’re purchasing your first home. You’ll have to pay back into the account within 15 years, however. If you don’t, you might end up having to pay taxes on that money down the road.
6. Pay Off Debts
Before you start taking your down payment seriously, you should pay off all of your credit card debts. If you can take care of these quickly, you can save money on interest.
The best way to do this is to focus your attention on one debt at a time. Pay off the cheapest debt with the highest interest first, then move on to the next one. Before you know it, you’ll be debt-free and ready to take on a mortgage.
Not only does debt hold you back from saving money, but it also makes it difficult to get a mortgage lender to actually give you a mortgage. Learn how to qualify for a mortgage before you try to get one.
7. Income Boosters
If you’re comfortable with it and have the time, you can start taking on side jobs to boost your income. And, if you’ve got a partner, they can do the same. These little boosts that come in add up over time and can make up a large part of your down payment when you look at the big picture.
It doesn’t even have to be a part-time job, it can be an Etsy store, handiwork around town, or tutoring local high school kids. Keep commitments to a minimum, so you can stop if it becomes too much work for too little gain.
8. Change Rentals
Presumably, you’re currently renting if you’re a first-time homebuyer. A quick way to lower your monthly expenses is to downsize your rental while you save to buy. If you’ve got relatives nearby, try to get them to let you live in their basement for free.
The temporary dip in comfort and lifestyle will pay off when you’re saving an extra couple hundred dollars per month and putting it towards your down payment. When you own property down the road, you’ll look back on this decision positively.
You’ll Have Your Mortgage Down Payment Faster Than You Think
When you start cutting costs and finding little income boosters here and there, you’ll be able to come up with your mortgage down payment a lot faster than if you just keep living your normal life. Whatever sacrifices you have to make now are necessary evils in getting your dream home.
Do it the right way and it’ll all happen a lot faster than you think. Then, you’ll go back to a regular old monthly mortgage payment, which is another topic for another day.
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