Budgeting Ideas : Tips to Save for a Down Payment

Down Payment Issue

Among the many tasks involved in the process of home ownership, budgeting for down payment is one of the most crucial tasks.

In today’s economic situation, every one seems to struggle to save funds towards down payment.

Some Important Statistics:

According to data from the U.S. Census Bureau, the median demand and price for U.S. housing in 2018 was just over $206,000. (Portland is closer to $450,000!)

In addition to this price, serious buyers are expected to put down payment between $20,600 and $41,200. This is not a small amount.

This is a relatively big sum of money for most people due to stagnant wages and loan debt.

To young students, student loan debt also make it more difficult to save for a down payment.

But still many people carefully budget to save enough up. Even if one is on a tight budget, there are some ways to still save.

If you want to build above-average wealth, you need above-average spending and saving habits. If you want to build exceptional wealth, you need exceptional spending and saving habits.

By having a clear focus and avoiding the unnecessary excuses, by not losing the initial momentum and by starting  to really save, one can achieve these results fast.

How much do you need to save for a down payment?

You may have heard that 20% is the gold standard when it comes to down payments, but in fact, many of today’s buyers are putting down closer to 5% or 10%. With an FHA loan, you can put as little as 3.5% down and a VA loan (for veterans) it’s 0% down!

Keep in mind that the amount you need to save for a down payment varies greatly by your loan program and your credit qualifications.

To get a feel for your own situation, reach out to a great mortgage broker.

They’ll be able to pull your true credit score and based on their expertise tell you how much you’ll likely be expected to put down.

Budgeting Ideas : Tips for saving for Down Payment

One need not borrow every penny to buy investment properties—or to own a home.

Arranging all the funds through loan/financing is neither practical nor economical.

Some of the steps are more extreme than others, but all of them achieve the same purpose- making  arrangements for your  down payment easy.

How to Grow Your Savings-Fast

The following are the steps involved in the process of arranging the funds for a down payment. These steps are not exclusive, one may combine many strategies to save more.

1. Know the Required Sum of Money

Before setting goals and starting at random, it is better to figure out what the required amount is.

It may need not be exact but having an idea of the sum will give you a better picture.

In general, a first time home buyer needs between 3.5%- 20% down payment.

Also it takes the average renter six and a half years to save enough for a down payment on a house.

Also as home prices are on a rising trend in many areas, it is always advised to budget for a bit more.

It will be better to budget a higher amount than being short of funds to buy your dream home.

Budgeting  process for Ascertaining Down Payment Requirement:

Once you have an idea of  how much you need to save for a down payment, figure out how much of your expenses you can reduce.  In this way, more money can be saved each month.

Divide the down payment by the monthly amount you’ll save, and you’ll have how many months it will take to save your down payment.

You can decrease the time by getting a second part-time job or looking for ways to increase income level.

Money can also be arranged by selling the things you no longer need. As a bonus, getting rid of clutter by selling it off makes moving easier!

2. Create a budget and set achievable goals

One of the basic things you can do when saving money for a down payment is to determine just how much you have left over after spending on necessities.

Spending on necessities can not be and should not be neglected.  The remaining sum is the money you’ll be able to save from, after all.

Set a budget that takes into account all of your monthly payments; it helps you make smart choices.

Remember even small amounts add up. So instead of focusing on one big number , break it up into smaller, more manageable amounts.

Try to save just $100, then another $100, and so on. Breaking it into small sums will make it more practical and easy.

It will put things into perspective, when you do manage to save aside $10 or $20 toward your goal.

By this you’ll actually recognize it as a small accomplishment and will feel motivated.

3. New Separate savings account for a Down Payment

Create a separate account with no linking debit card or checks that you can use solely for the purpose of saving for your down payment.

Try to transfer a certain percentage of all incoming money into the account—every little bit makes a difference.

Expert recommend saving minimum 10% of the income, the more one can keep aside the better it is.

 Sign up for automatic saving plans

Many banks provide the ability to automatically transfer extra money into a savings account.

For this they round up the dollar amount on purchases, and then transfer to specified account.

It’s also a no-fuss way to save money without having to even really think about it.

Set up automated savings transfers to take place every single paycheck.

The very first monthly payout should be the transfer to your savings or brokerage account.

Another option is recurring bank transfers, but you can also take advantage of automated savings apps like Acorns or Chime Bank’s app.

4. Dedicate any extra income to your down payment

Some follow the practice that whenever they receiving any cash gift then they transfer it for savings.

Similarly transferring any bonuses or increment received from work towards down payment.

5. Plan and decide before spending

Saving for a down payment doesn’t mean you completely stop spending money on things you enjoy.

Few people like to spend on buying clothes or for concert tickets frequently. So instead of spending each month, one may decide to spend on it quarterly or half-yearly.

Because you realize that buying or spending on those things like usual will take you a few steps back from achieving your goal.

For any purchase that isn’t a necessity, give yourself 24 hours to think and decide if it’s worth it. If it’s a really big purchase, give yourself a weeks time before deciding.

These small sacrifices helps towards achieving the larger goal faster.

6.Use cash more than credit card

As much as you can, rely on cash for your everyday spending instead of a credit card.

This way one will be more conscious of how much they spend. By using cash there are more chances that, they will avoid going for unnecessary or overpriced things.

This in turn helps in keeping more money in the bank, that you can put toward a down payment.

7. Extra income by Selling stuff you don’t need anymore

Chances are you have plenty of things in your home that you never use.

Put unneeded belongings to good use by selling them for cash online or with a yard sale.

Not only will you make some extra money, but will also have less to pack up when you do finally save enough and make a move in the dream home—a win-win!

8.Make shopping lists before hand and remove temptation triggers

In general, stores work hard to promote their goods in such a way that you buy more than you really want.

Beat this system and save a ton of money by creating a list of things required urgently beforehand and stick to it seriously.

If subscribed to marketing emails from favorite brands or stores; you’re baiting yourself to spend money on non-essentials.

Click “unsubscribe” so less temptation ends up in your inbox and you can focus more on the purchases that matters most to you.

9. Reduce Your Car Expenses

Transportation is the second largest expense for most people. It’s up to you to find a way to reduce it to its bare minimum.

Car payments, insurance, gas, parking, maintenance, and repairs, it all adds up to make Total Car expense for a month.

If you can get by without one, sell it and carpool or take turn on drive, or ride your bike to work.

You’ll save on car payments, maintenance and insurance costs, which can help put you even closer to your dream.

Another way is Cutting down on unnecessary trips. Buy groceries and vegetables while returning back from work.

Whenever running errands, plan out your route so you drive in a circle and don’t backtrack.

10. Pay bills in a timely manner

Paying your credit card in full every month is a basic personal finance rule. If not already in practice, one needs to bring it into practice immediately.

It’s a higher priority than buying real estate, saving for retirement, investing in stocks, or anything else.

It is so because credit card companies charge more in interest than you’re likely to earn from any other investment.

11. Buy used than buying brand new

We can buy many used things and save on the price, provided the quality of the product suits your expectations.

Some times when an advanced version is available, a previous version can be available at a lower price. Example- phones and computers, if its very urgent.

We can all agree there are some things you shouldn’t buy used. Groceries and personal hygiene products are clear exceptions..

12. Methods of saving by spending less:

In general, there are many such expenses in a household which are not necessity and can be given up. By reducing usage or by spending less on such expenses, small savings can be created for down payment.

Some of such expenses which a house hold can forgo are:

1. Stop Eating out excessively:

If it wasn’t made at home, you can’t eat it. Period.  No more restaurants. No more take-out, delivery, lunches out with friends.

Learn how to cook. Batch your meals in advance. Brown-bag your lunches. Make enough for leftovers.

Any food not prepared by you is not a necessity and not a food expense.

By eating more at home, one becomes healthier, saves money, and has more nutritious food. And health is wealth.

2. Stop Drinking at Bars or Restaurants more often

If you have to drink, do it in private homes.  Bars and restaurants mark up their drinks four times above cost on average.

You’re going to stop paying to line business’s pockets.

3. Stop Cable & Other TV Subscriptions

Your mom had it right: TV rots your brain and life.

Call your cable TV service right now and cancel the subscriptions.

If you absolutely must have, allow yourself only one—online streaming service, such as Netflix or Hulu or Amazon Prime. No more than than is required.

But you’d be better off getting rid of your TV entirely.

4. Hotel Boarding Expense while in travel

When you travel, stop staying at hotels. Ideally, stay with friends or family.

If that’s not possible, and you must pay to stay somewhere, find somewhere inexpensive on Airbnb.

5. Quit Gym & Work Out at Home

A study published by Statistic Brain found an appalling 63 percent of gym memberships go unused.

So don’t spend on it unnecessarily. Commit to a home workout routine instead, and cancel your gym membership.

There are about a million free home workout routine and yoga videos on YouTube. Also going for a walk and running in a ground is good exercise as well. Its altogether free.

The only cost you should incur for working out is your shoes and maybe a yoga mat.

The greatest energy expense in your home is your climate control—heat in the winter, air conditioning in the summer.

Set your thermostat to the bare minimum acceptable usage. Yes, that means you’ll have to wear a sweater at home in the winter and throw an extra blanket on your bed.

Get over it, and be grateful you live in an era of easy climate control in the first place.

9. Buy Generic Brand Groceries and Drugs

Generic drugs, both prescription and over-the-counter, have the same active ingredients as their name-brand counterparts.

Branded products spends a massive amount of money on branding, ads, and research and development. But their generic versions are available at low price.

Likewise for groceries, the generic brand products are literally manufactured in the same factory as the branded products.

The only difference is the packaging. It’s the most efficient method of mass-manufacturing, after all.

Final Words

Whether you’re putting down $1,000 or $50,000, you’ve still got to figure out how to save what you need.

Don’t look at a down payment as an impossible hurdle to jump over. Break it into small, digestible goals so that you can see your progress in action, and never lose sight of the reason you’re working so hard to save.

If owning your home is truly important to you, it will be more than worth it to pass on the expenses that bring you immediate gratification but take you further away from what you really want.

Be smart in your spending and realistic in your home buying budget and you should be able to save up what you need.

Saving for a down payment takes focus and perseverance. The best time to start is now. Figure out what your budget is and how much you can save.

Once you have those basic facts laid out, it’s much easier to come up with creative ways to bring in additional money and get to your goals faster.

Melissa Dorman

Broker | OR & WA

She/Her

Ten years ago, Melissa was living in a slum in Kolkata, India, helping over 200 women escape sex trafficking by providing alternative work at a social business. It was there she discovered her passion for financial education as a means of empowering people to move out of poverty. After graduating from UCLA with a Masters, Melissa spent 5 years working as a Social Worker; assisting clients facing homelessness, in jail, or at a psychiatric facility. As much as she loved the work, imagining saving for retirement on the meager salary of a social worker was becoming grim. That's when Melissa discovered "passive income." In no time, she fell in LOVE with real estate as a vehicle for wealth. Soon after, Melissa began locating off-market multi-family properties to purchase through creative financing strategies and win-win opportunities. Two years into investing, Melissa quit her day job as a Social Worker to become a full-time broker and investor. Initially, she was drawn to people in difficult circumstances, so she developed extensive experience assisting families facing foreclosure, short sales, and probate. Melissa is well versed in helping her clients overcome complex real estate challenges. Currently, Melissa is teamed up with Super Broker, Yascha Noonberg at Living Room Realty. Together they assist clients to achieve their real estate dreams, including how to strategically buy and sell a personal residence to maximize profits. Far from the slums of Kolkata, her greatest passion now is empowering other working professionals to develop passive forms of income through buying multi-family properties in Portland.

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