Photo: ALAMY
Saving for a down payment for a home purchase can be one of the biggest obstacles for many in the home buying process. There are many factors that can determine which way of saving may be appropriate for you. If you have a longer time horizon for saving, perhaps getting into the markets may be a very viable option for example. It is always best discuss your savings and financial portfolio with a certified financial planner, however, there are many, easy way to save that you can implement in your daily routine to get you started on the path to home ownership. We aren't saying these methods will give you a $50,000 down payment overnight, but, if implemented, can certainly chip away at it over time.
Ways to Save for a Down Payment
1. Reduce Your Rent: If you are currently renting, review what you are currently paying and see what options you may have. If you have been a good tenant, use this as leverage to negotiate with your landlord for a better rate or no increase in rate. If it is feasible, have you considered living with parents or friends while you are trying to save?
2. Track Your Spending: In a so-called "cashless economy" it is easy to lose sight of how much you are spending, when most transactions are done on credit cards and Apple Pay. Consider making a spreadsheet to track expenses or using a tool such as Mint to keep track of your spending. You might be surprised at how much you are spending on Taxis or Ubers in a month's time. It is a great way to find areas to cut down on spending.
3. Make It Automatic: Take advantage of automatic savings that may be offered by your bank. Look into options such an auto transfer of X amount of dollar each month to savings or programs that round up each purchase to the nearest dollar and transfer that to your savings. Additionally, utilize your employer's direct deposit option and add your savings account as one of the accounts to receive the pay. You can specify the dollar amount to be deposited to your savings from each paycheck. This aligns perfectly with the old saying, "Out of Sight Out of Mind"
4. Tap Your IRA: If you have been saving for years in an IRA account, you may consider taking a withdrawal as part of your down payment. The IRS has an exception which allows first-time homebuyers to withdrawal up to $10,000 without facing the normal early withdrawal penalty for people under age 59 1/2. Your withdrawal from a Traditional IRA will be subject to income tax while a withdrawal from a Roth IRA will come out tax free (assuming the account has been established for 5 years). If you are considering an IRA withdrawal, speak to a qualified tax professional for your unique situation.
5. Use Work Bonuses: If you receive an annual bonus at work, consider putting that into your down payment savings account each year. While it is important to have fun and celebrate your success, the wealth that owning a home generates will pay off more than that night out at the club.
6. Reduce Happy Hours: Everyone loves a good happy hour to help get through a tough week. If you are making it a habit 2 times a week it is costing you. Consider the average happy hour drink costing $7 with tax and tip. At twice a week, thats $728 a year on happy hour....assuming you only get one drink at each of those happy hours!
7. Check Monthly Bills: What monthly bills are you paying that might have areas to reduce the cost? Cable and cell phone bills are great places to dig deeper at the features you are paying for. Do you really need HBO at $12 a month PLUS Netflix for another $10 month in addition to the hundreds of cable channels you are getting?
8. Don't Forget Family & Friends: Discussing money with anyone is always a sour subject, especially with family and friends. However, they can be an excellent source for help with your down payment. Consider asking parents for help as an early inheritance or as your wedding gift now in exchange for not receiving a a gift at the time of marriage. Instead of dinners from friends for your birthday or gift cards, let them know you are working towards purchasing a home and cash would be the best thing you could receive right now! True friends will understand.
9. Gym Membership: Your gym membership is a great opportunity to cut down on monthly expenses. With so many fitness apps such as ClassPass, YouTube Videos, and equipment, exercising at home has never been easier. If you are an avid gym user, this option is probably not for you, but if you use your gym occasionally, it is something worth considering. Your $250/month Equinox membership is costing you $3,000 a year...that is a lot of money! If you cannot give up your memberships, look into options such as corporate discounts or special incentives that your gym or workout venue of choice offers.
10. Get Your Caffeine Dose at Home: Sometimes a morning cup of coffee (or 3) feels like it is the only thing that will get you moving...trust us we know! However, your daily trip to Starbucks during the week for a grande nonfat latte at $4.78 is costing you $1,243. Save that money and drink your coffee at home and imagine how good coffee will taste in your new home!
When you make the decision to start saving for a home, speak to a real estate agent about what you are considering purchasing. They will be able to connect you with a mortgage broker so you have a full understanding of what you can afford, and, thus, how much you have to save.