8 Ways to Save Big for a Mortgage Down Payment

Skipping your favorite coffee shop drink or giving up your gym membership isn’t the way to save for a big down payment. Making yourself miserable is not the motivation you need to save for a house. Learn the faster way to save big to buy a home with these tips.

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Automate Your Savings for Down Payment

We are all guilty of spending what we have available. But, what if you don’t have the money available? Rather than taking your whole paycheck and trusting yourself to divide it up between savings, bills, and ‘fun,’ automate the process.

Ask your employer to put a specific percentage of your income directly in a savings account. You can divvy up your check however you want. You can even have parts deposited in several different accounts. When the savings is done automatically for you, it’s kind of like ‘out of sight, out of mind.’ Now you don’t have to worry about spending the money you should be saving – it’s done for you.

Bank Large Windfalls

If you know you’ll receive a windfall, whether regularly or spontaneously, why not save it? You didn’t have the money before and it’s not part of your income, so you shouldn’t have it spent. Before you think about your dream vacation or a shopping spree, throw it in your savings account. Again, if it’s out of sight, it’s out of mind. This will give you a good head start as the interest compounds while you save more money to buy a home.

Windfalls could be any of the following:

  • Bonus check
  • Lottery winnings
  • Inheritance
  • Tax refunds

Any money that you receive that isn’t part of your regular income should go straight to your savings account.

Bank Your Raises

If your employer gives you a raise every year, consider banking it. If you were able to live on your previous paycheck without trouble, don’t take the money. Instead, use the automated savings tip above and set that money aside each month.

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Even if it’s just a 2% raise, it could make a difference. Let’s say you make $40,000 per year now. A 2% raise would give you an extra $8,000 a year before taxes. Putting that money aside could give you a great start on your down payment money.

Get Rid of Debt

It doesn’t make any sense to save money when you waste it on high interest rates on your credit card debt. Choose one credit card to focus on at a time. You’ll make the largest payments to this card. The others will still receive the minimum monthly amount due.

You can choose to start with the credit card with the highest balance; the highest interest rate; or the lowest balance. You know what will motivate you the most. If it’s attacking the card with the highest balance first, then do it. Once you start seeing the balance decrease, you’ll want to keep going. Some people prefer to see a card completely paid off, though. These borrowers should start with the card with the lowest balance, paying it off and moving onto a larger card.

Negotiate Your Credit Card Interest Rates

Do you know how much you pay in interest on your credit cards? What if you could lower those rates? You’d save money in the long run. While a lower interest rate won’t put more money in your pocket right away, it will help you pay your credit card debt down faster. Once you pay the debt down, you’ll have that extra money in your pocket to save.

All it takes is a simple phone call to your credit card company. Ask them for a lower rate. If they don’t oblige, see what you can do about transferring the debt to a 0% balance transfer credit card. Make sure you tell your current credit card company that’s what you’ll do if they won’t lower your rate. You might be surprised how willing they are to oblige.

Refinance Installment Loans

If you have student loans or car loans, consider refinancing into a lower interest rate. Make sure you pay attention to how much money you’ll save every month as a result. You can then bank that money every month for your down payment.

Make sure you shop around for the right lender. Each lender will have a different program and interest rate. Try to find the one that will save you the most money each month.

Take a Side Job

Even if you work fulltime, consider what you can do on the side. Are you crafty, handy, or good with computers? Chances are you have a skill that others don’t. These people are often willing to pay people like you to help them.

This money would be similar to your windfall – put whatever you earn directly into your savings account. It’s not money to help with daily living expenses or to blow shopping. Save it and let the interest start compounding for you.

Clear the Clutter

Have you ever heard the saying ‘someone’s junk is another person’s treasure?’ Go through your home and see what items you haven’t used in a while. If they are in good condition, consider selling them on one of the resale sites online. You might be surprised to learn how much money you can get for your grandma’s old guitar or your uncle’s old fishing pole.

Not only do you get rid of the clutter in your home, but you have money to put aside to help you save for your down payment.

Saving for a down payment doesn’t have to mean giving up your $5 fancy coffee. Of course, if you can give up a few habits, it may help, but it’s the bigger changes that have a lasting impact on your finances.

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JMcHood

Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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