8 - How to Save for a Down Payment on a House

Saving up for a down payment on a house can seem like an impossible task but there are ways to make it happen. I give 8 different tactics that can be used and combined together to help you get your down payment in 12-24 months.

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Don't let the down payment keep you from getting into a home!

Transcript

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Welcome to the first time home buyers podcast by lone pros. I'm Phil. Mastroianni a mortgage loan, originator and licensed real estate agent here to help you become a more informed home buyer. Thank you for listening and please head over to loanpros.io for more articles, information, and our contact information. If you'd like to speak directly to us. Today, we're going to be talking about ways to save for a down payment on a house. Saving up for down payment on a house can seem like an impossible task, but there are ways to make it happen. By following a few simple tips tricks, you can reach your savings goal in no time. Most of these options will end up taking about a year or more to save for a down payment, but it's a small price to pay for the opportunity to buy a home. But let's start by talking about how much you actually need to save up for, for most people, a 20% down payment is ideal. This gives you the best chance of being approved for a mortgage. Avoiding paying private mortgage insurance. It guarantees a large amount of equity in your home that you can leverage in the future. If you ever need to. If reaching that full 20% is just not possible. There are a lot of options still for you. You can put down typically as little as three and a half percent with an FHA loan. And that's what a lot of first-time home buyers do. However, you will be required to pay mortgage insurance and you are going to have a lot less equity in your home when you move in. In addition to a down payment, you also need to have money saved up for other costs associated with buying a house such as closing costs. These can add up to thousands of dollars. So it's important to factor them into your savings plan, expect to pay upwards of two to 3% in closing costs on top of your down payment. So that usually means you're looking at anywhere between five and a half to six and upwards of 7%. That you'll need to have available. To purchase a home. Now that we've talked about how much you need to save. Let's talk about some ways to make it happen. I'm going to talk about eight different tactics. But you can combine some of them together to make it happen even faster. All right, let's start with number one. Automate your savings. One of the best ways to save money is to have it taken out of your paycheck automatically and deposited into a savings account. This way you won't be tempted to spend the money. you can also set up automatic transfers from your checking account to your savings count so that you're always putting away money. It may not seem like much, but if you can save $150 from each paycheck, That's an extra $3,600 per year. Talk to your HR department. They can usually set up a second account to deposit into directly from your check. Your bank can also set up a schedule to transfer money on your payday. So you don't have to worry about it. The second is making a budget and this is something you should be doing anyway. But in order to save money, you need to know where your money is going, track your spending for at least a month or two, and see where you can cut back. Once you have a good idea of where your money's going, you can create a budget that will help you save, and you may be surprised just how much you're spending on things like food, clothing, and entertainment. So look at areas that are non-essential and try reducing these by 50%. Employ the automated transfers to a savings account in the amount that you cut from your budget. So you aren't tempted to spend it. Our third is to cut back on expenses. Going along with the previous strategy of diving into your budget. You can work on lowering your expenses. And this is where it's really important to take a hard look at what you're spending on essentials. So I want to break this into three areas. The first is housing, then transportation, and then recurring bills. So it start with housing really consider where you're living. Renting does allow for flexibility and finding another rental. That's just a few hundred dollars less a month could give you that extra savings you need. Consider a lease in a different area or possibly smaller, older, or maybe with less amenities. You can also consider taking on a roommate splitting costs with someone even for a short time period that can greatly impact your savings ability. The second is transportation. A high car payment can often be something that really makes it hard to save. There's a trade off between a reliable car that doesn't require a lot of maintenance and an older used car. If you have a high car payment, you do have a couple options. If you've increased your credit, since you purchased. You can look into refinancing your car. This is lowering your payments by a hundred or more dollars. That can be thousands saved per year. You can consider trading in your maybe larger vehicle. If you've got a big truck or SUV and you don't really need it. Look at maybe a compact high mile per gallon car. Not only will this lower your monthly payments, but you should see a decrease in your cost for gas and your car insurance. Let's talk about some recurring bills, some of the recurring bills that you can negotiate include your car insurance, renter's insurance, your cell phone bill, and your cable and internet. These are all services that you can call and talk to customer service about lowering your bill. And there are likely competitors that you can use that you can shop for costs. Oftentimes, if you threatened to leave for a competitor. They'll work with you to keep your business and they will lower their costs. As far as recurring entertainment costs really decide how many streaming services you need. Do you pay for a monthly gym membership that you just don't use? The best thing to do is pull your credit card and bank statements for the last month or two. Look at those recurring charges. And just choose some to try to get rid of For the fourth item here. It's increasing your income. Now this may sound like a no-brainer, but making more money allows for you to save more. Of course. There's a few different options on this. You can try for a better paying job or work towards a raise at your current job. That's an entire process on its own, but if you haven't had a pay increase in some time, several years, It may be an easy opportunity for you to ask for Also, if they've hired new people at a higher rate than you're currently getting paid for, you may have an easy argument for an increase. Oftentimes people take on a second job, whether that's part-time or full-time, if it's something that you can do, do it just for saving up for your down payment, working a part-time job of 20 hours a week at $12 an hour is almost $10,000 in extra income a year, couple that with some of the cost savings, and you can have your down payment saved in a year. The key here is not to spend that extra income, But work to put it away in savings and stay living within your same means. Fifth option here is take advantage of company offered incentives like a 401k. If your company matches your 401k contributions. It may be a way to accelerate your savings. Many companies will match upwards of four or five, 6% of your paycheck. This means that for every dollar you put in, they'll also put one in. Often there's a vesting period, meaning they're matched amount. Isn't yours for specified period of time. It can be as little as the same day, as much as several years since your 401k contributions are pre-tax they often don't impact your paycheck as much as simply moving money into a savings account. Combine that with company match and the managed nature of the accounts you'll often see your account grow much more quickly than just a standard savings account. This isn't a quick plan. Often people save for years in their 401k to get at the point where there's enough balance to use for a home down payment. Start early, even contributing just 1% of your paycheck will have a bigger impact than you might think. Some companies also offer down payment assistance to their employees. If your company doesn't talk to your HR team or your boss about it, it may be an incentive they're willing to consider to help keep more people on in their company. Increase employee retention rates. Number six, consider a side hustle to make extra money. So similar to taking on that second job, these are a little bit more of contract type roles. A quick note about this. You may not always be able to use this as part of your income calculations when applying for a loan, consider this only as a great way to get those extra savings you need, But there are a lot of extra restrictions about how contract or inconsistent work can be calculated as income With many loan programs. So let's talk about some of the more popular side gigs side hustles that you First is delivery or a driver, like Uber, Lyft, lets you work really whenever you want. Add an hour or two before after work to earn a few hundred dollars every week, you can also consider doing Uber eats door dash grub hub Instacart as a shopper food delivery. Many of these jobs end up paying anywhere around $15 an hour, but depend highly on tips and consider your cost of doing business with the wear and tear on your vehicle and gas costs. The next is freelance writing. There are many sites that allow you to get connected with companies who need writers, some pay per word, others, pay a flat rate per article, depending on how good and fast of a writer you are. Some people make six figure living, just doing contract writing. Social media consultant have graphic design skills, or really just know your way around social media. Many companies are paying people to handle their social media for them. Consider talking to a local business, which maybe don't have a good presence and pitch them, paying you monthly to take care of it everywhere. From restaurants to small businesses, they all need someone to make sure their social media is taken care of. The next is event planner, everything from doing wedding coordination to even travel agency, most work, can be done on a phone or tablet. Does require a lot of attention to detail, but can be rewarding and make a good amount of money. dog-walking or pet sitting long-term pet sitting or regular dog-walking can be a great extra source of income, especially if you're a pet lover or you already have pets and it makes it really easy because you already have all the supplies. There are sites that will help connect dog walkers with pet owners. Do some Google searching. You'll find a few of those. Car or home cleaning. You can start a business offering to clean other people's homes or cars. This can be done on your own schedule and doesn't require any really specialized equipment. Other than maybe some of the cleaning supplies that you may already have on hand. Larger homes and car detailing. Can start adding thousands in income with just a single booking a week. Talk to your real estate agent that you already have. Oftentimes they're in need of people who need move out or move in cleaning. And those are several hundred dollars and that either prepares for someone leaving or coming in. If you have a lot of people that you know, that are renting and moving around a lot. Oftentimes, they want someone to help deep clean before they move out to ensure they get their deposit. So you may already have a network of people that you can start offering the service to. And the last here is baking or cooking often, you just need a basic permit from the city or county and a business license, which usually costs less than about a hundred dollars to get started. But if you're one of those that are good at making holiday or unique treats, you can start selling them locally, online, local fairs or farmer's markets, facebook neighborhood groups are great ways to get your name out there. And you may be surprised how much people enjoy your unique creations. Everything from cookies to muffins or cupcakes, charcuterie boards, jams. Jellies can be. Made at home. And sold for a profit. The next major section here is tax refunds and making sure they go straight to your savings. If you get a sizable tax refund. It's really tempting to use that for things like vacations. down payments on a new car, things like that. But the average refund in 2022, according to the IRS was over $3,000. Taking the whole thing, or even just half of it can get you a jumpstart on your down payment, any other type of stimulus May also make sense to just drop directly into your savings account. Pretend like it didn't even happen and use that money towards your down payment. The last option is a gift. And this may sound like something that you wouldn't expect to be able to get, but many churches or local organizations actually have gift opportunities. Also consider family members who might be able to help you out a little, even $500 can make the difference when you've been saving for a year more to help put you over the top. Some cities or counties have grant programs that are not tied to a specific loan that helps first time home buyers , often you have to be a resident of the city for several years and there may be other limitations. But it's definitely worth checking your local city and county for any programs that they might offer. Now I want to run through some of the numbers to give you an idea of how these all work. Let's say you were able to save two years of tax refunds that would give you on average$6,000 in savings without impacting your lifestyle. Right? No budget cuts, anything like that? But if you are able to cut a hundred dollars per month from your expenses, That would give you an extra $1,200 a year. And now that puts you at$7,200 in a 12 month period, that you are able to save. If you could put away$150 per paycheck. That would be another $3,600 to your savings in just one year, which would put you at $10,800 in savings in just one year. If you were able to add in a part-time job. That's an extra $10,000 in a year and you now would have over $20,000 in savings. That would be about as much as you would need for down payment and closing costs on about a 300 to $350,000 home. All of this in a single year. If you are able to do that for two years, you would be able to save nearly $40,000 to put down on a home. There are many creative ways to come up with down payment for your first home. You just have to get a little bit creative and resourceful, find what will work best for you and your situation. It doesn't hurt to ask others how they saved for their down payment to get other ideas as well. Just remember the sooner you start saving the sooner you'll be able to call your house your home., Thanks so much for listening and please head over to loanpros.io to see more information articles and our contact information.