Are you trying to save for a down payment on your dream house? A bigger down payment can make it easier to obtain a loan and reduce your monthly mortgage payments.
If you’re trying to save for a down payment, consider these strategies:
Set a down payment goal
It’s easier to save if you have a clear goal for your down payment. Look at houses in your price range and talk to real estate agents to get an estimate of how much money you’re looking at for a down payment.
- Lenders tend to ask for 20% as a down payment. However, you may be able to obtain a house with a smaller or bigger down payment. By having a bigger down payment, your mortgage will be smaller.
Use traditional savings accounts.
A traditional savings account at a bank has both advantages and disadvantages.
- One of the benefits is being able to withdraw and use your money quickly. Another advantage is that there aren’t any fees for withdrawing the savings. You have instant access to the account and can use it.
- The downsides of traditional savings accounts are the possibility of monthly fees and low interest rates, so your money doesn’t earn much.
Use insured money market accounts.
These accounts give you higher interest rates on your savings, but they aren’t always insured, like your money is in a savings account. So you could end up losing money.
- It’s important to pick the right kind of account for your situation. A money market mutual fund account isn’t insured and could lose value. A regular money market account from a bank or credit union has insurance.
Consider certificates of deposit (CDs).
CDs tend to have higher interest rates than savings accounts, so your savings will grow as you plan your down payment.
- One of the disadvantages of certificates of deposit is that they have maturity dates. This means that you can’t take out the money before the maturity date. If you do withdraw it, then you’ll have to pay fees and penalties. Your money may be unavailable for six months, a year or longer.
Try the $5 bill savings plan.
The $5 bill savings plan is a simple process to reach your down payment savings goal more quickly.
- In addition to your regular savings routine, this plan involves saving a $5 bill every time you get one from a bank, friend, or store. If you get a $5 bill or multiple $5 bills as change, then you save them. Deposit them on a timely basis to earn interest.
Take advantage of automatic savings transfers.
It’s easy to forget to add money to your savings accounts. If you’re worried this will happen to you, set up automatic transfers from your paycheck to your savings account.
- You can choose the amount and frequency of the automatic transfers.
- One of the advantages of this strategy is that you can choose an amount you wouldn’t really miss from your checking account. What you never see, you can’t spend, either. Your savings will grow automatically.
Consider state home buying assistance programs.
Each state has its own programs to help home buyers save for down payments. Down payment assistance varies by location.
A down payment is one of the essential steps to obtaining a house.
If you’re able to save more money, you’ll have a bigger down payment, lower mortgage payments, and fewer concerns. Try these tips to save the down payment you want and need.