Saving Up For A Down Payment?
HousePlant is here to support you reaching a full 20% down payment in part through social loans: flexible loans from friends and family.
Before you begin, we do recommend saving up as much as you possibly can toward your down payment, ideally at least 10%. Then, when you create your ask for family and friends, you can demonstrate you’ve been diligently saving towards this goal and in turn you may receive even more offers (or larger amounts) to match your existing savings and pitch in for the rest. Your official mortgage lender will also probably want to see that you have saved at least some of the down payment on your own as well.
We know that saving up a big down payment is harder than ever: housing prices have skyrocketed over the past 30 years. A recent analysis by Clever Real Estate showed that median home prices have grown by 118% while median household incomes only grew by 15%. So you’re not making it up: saving even 10% is not as easy as it was for previous generations. But, march ahead we must.
Here are some tips to help you get there and have even more saved up for when you create your ask on HousePlant!
Research the costs of home ownership
The costs of homeownership include your mortgage payments, property taxes, homeowner's insurance, and maintenance. It is crucial to make sure that you know the cost of ownership. This will allow you to make a more informed decision when you buy a home. The lending institution is required to show you the good faith estimate, which includes an itemized list of all of the estimated costs. Therefore, you can calculate how much your monthly mortgage payment will be.
Decide how much house you can afford.
Once you have a sense of what is available in the areas you want to live and how much it costs, double check you are very comfortable with not only the estimated monthly payment but a cushion of extra costs that come with owning a home. If too much of your monthly payment goes to home-ownership costs, it’s commonly referred to as being ‘house poor’ meaning you have a sweet house but can’t afford anything else! This situation also has other risks and is generally better to avoid.
Set your home affordability range by planning for a mortgage that will be 28% or less of your gross monthly income.
Make a plan for your down-payment savings
Next, find the best possible place to save up: an account with a good savings rate (called APY). NerdWallet has a great, often-updated list of the best current offers from brick and mortar banks, a credit union, and online banks. If you are buying with a partner, look for the same options in a joint savings account. If you are saving up with another person to buy a home together, establish how much each of you can put into saving monthly. This may or may not be the same amount, every situation is different.
Also, first-time homebuyers should research the pros and cons of using IRA savings for a first time home purchase. But be thorough as mistakes can carry an IRS penalty fee.
Start small and set your goals
The first step to saving for a down-payment is to decide what your goals are and where you are going to park those savings. Next, you need to set up a budget and stick with it. You will need a plan to reach your goals.
Decide how much of your monthly income you will need to save (and by when) to reach 10% or more of your down payment, and then make an updated budget to confirm what’s feasible. Use free monthly budgeting tools like Mint.com or your banks spending analysis features to understand your monthly spending habits and see how much flexibility you have to make adjustments and save. Once you know how much you can and need to save monthly, make it easy and automatic.
Set up automated monthly recurring contributions. “Set it and forget it".” Automation prevents forgotten deposits and gives a predictable time frame for saving up. Many people time these with payday when funds hit their account.
Stash free cash.
Look for other places to source chunks of cash that could come your way:
Bonuses
Cash or checks given as gifts during the holidays or birthdays
Save-what-you-raise: if you get a raise at work (congrats!) save the extra amount in your paycheck, you won’t miss something you didn’t already have.
Stash payoff equivalents: if you fully pay off your car or student loans (again congrats!) save the equivalent of the monthly payment. You are used to living without it, so reroute that same monthly amount into your down payment savings.
Check Your Progress
Every few months, review your spending, budgets, and savings. How is everything going? Are you on track to hit your savings goals? How is the squeeze, are you still able to comfortably make ends meet while saving up? Continue to tweak and adjust as you build new strategies that work best for you.
Don’t forget to celebrate those milestones. Saving money is harder than ever, so pat yourself on the back. Even just doing a happy dance in your living room can spark that joy that keeps you going. Be proud!
Enjoy the Journey
Watching your savings grow can be a slow process, but the journey makes for a rewarding one. Saving a part of your income each month will allow you to amass your down payment within a few years.
Buying a house will give you the opportunity to build a future and a home while also giving you a financial boost. A certain percentage of your paycheck goes towards your monthly payments, so you must get the most out for your buck. Your most significant saving opportunities may lie in being strategic with what's in your wallet.
Have more tips on how to save up toward a down payment?
