Buying a house is a big purchase. And even if a buyer is not planning to fully pay for a house in cash, there’s still the problem of how much a buyer should have as down payment. Of course, offering a big down payment can save the buyer a lot of money in the long run since the higher the down payment, the lower the loan and monthly payment will be. However, putting down the bulk of a person’s cash for a house down payment should also not affect one’s liquidity.
So, what steps should a buyer take in saving towards a down payment for a house?
1. Figure out how much to save
Sit down with mortgage lenders or mortgage brokers such as Mel Finance who could advice how much of a mortgage one could qualify for, the amount of down payment to offer and the monthly payments needed for a particular time frame.
2. Determine one’s time frame
Given the recommendation from the experts on how much down payment could be put down, a buyer could determine how long he/she has to save for it. Naturally, the shorter the time frame, the higher the annual savings goal will be.
3. Find the best ways to save for the down payment
a. Put a fixed amount into a special savings account every month
Save the down payment money in a very safe vehicle, like a savings account, and not in a risk-type investment vehicle, like stocks. Set up an automatic direct deposit into a savings account to remove the temptation and ability to spend the money on other purposes.
b. Save periodic windfalls
Windfalls could include income-tax refunds, bonuses, tips, commissions, dividends and gifts received. Adding these funds into the down payment savings account speed up the saving process.
c. Reduce expenses
Review expenses and look for what could be reduced or eliminated. Put the money that would have been spent on those items into the down payment savings account. Figure out your ‘wants’ and ‘needs’ and prioritise where your bucks should really be spent on.
d. Skip vacations temporarily
The money that would have been spent vacationing can make a big contribution towards a down payment. Fares and hotel expenses are not at all cheap, not to mention the pocket money you’ll have to set aside.
e. Sell some investments
This moves some investments into another investment vehicle, which is the house you’re looking at buying.
f. Get a second job
Even temporarily, earnings from a second job can contribute to down payment savings. There are heaps of freelance gigs online that can definitely generate – although not huge amounts, some extra funds.
g. Look into down payment assistance
Some organizations, like the government Housing Administration or Housing Service might provide help for down payment to a qualified buyer. Also check out local housing authorities to see if they have programs to help.