Strategies to Save for a Down Payment

Owning your home may be on your list of future goals—or possibly your goals for the not-so-distant future. If you’re a first-time homebuyer, you’re likely aware that making one of life’s biggest purchases comes with many advantages, including the prospect of building wealth over time through building equity in your home. When approaching any big project, it helps to break it down into smaller components, and one of those is to start saving for a down payment. Here are some tips to help you know where and how to get started.

  • Set realistic expectations

Yes, it’s exciting to dream about the perfect home; you may have been doing this since you were a child. Now you’re adult and understand that it’s smart to establish your priorities or “must haves” as they relate to what you can afford. Start your path to homeownership by setting realistic expectations about what you can afford. This will improve the entire process, making it easier for you to save for the down payment you need and make affordable monthly payments once you buy a home.

  • Determine your savings goal

The next step is figuring out how much money you’ll need. By making an appointment with a loan officer at your trusted credit union, you will be on the right path to understanding the home loan application process, of which a down payment is an important element. Your loan officer can help you determine how much home you can afford and how much money you will need to save for a down payment. They can also review with you the different costs that might be included in a home payment, such as PMI (private mortgage insurance), HOA (homeowner’s association) fees, real estate taxes and homeowner’s insurance. This is all good information to have early in the process.

  • Create a savings plan

After you determine how much money you need to save, set up a time frame of when you want to buy a home to calculate the monthly savings amount needed towards that goal. This step will make it easier to prepare a budget and stick to it.

  • Open a savings account for your down payment

By opening a savings account specifically for down payment funds, you can help avoid any temptations to use the money for other reasons.

  • Budget and save

By directing any unexpected cash windfalls, bonuses or tax refunds into your down payment savings account, you will reach your goal more quickly. Here are some additional ideas to accelerate your savings plan:

  1. Automate your savings

Set up automatic deposits or transfers into a savings account designated for your down payment.

  1. Increase your income

If you are an exemplary employee in good standing, it may be a good time to ask for a raise. Also, consider taking on a part-time job or side hustle. Examples include becoming a driver, food delivery driver, handy person, lawn care worker, tutoring or freelancing.

  1. Sell any unnecessary items

Look around for any big ticket or unused items you can sell. Selling those items online or at a yard sale can contribute to your down payment fund and give you less to move into your new home when the time comes.

  1. Move into a more modest rental or get a roommate

Cutting your living expenses by moving into a less expensive home or apartment can help you to reach your goal. If you have room to spare, consider taking on a roommate to reduce current living costs.

  1. Downsize your car

By downsizing your vehicle to a more economical option, and one that gets better gas mileage if possible, you could reduce your monthly car payment, potentially save on gas and may be able to lower your car insurance payment. Depending on where you work, you might be able to take public transportation, bike or rideshare.

  1. Tighten your budget

Review your monthly expenses to determine if there are any sustainable spending cuts you can make without sacrificing too much quality of life. Remember, you have an important goal! You may be able to eliminate a “monthly” expense, such as an unused fitness club membership or premium cable subscription. You can also reduce the number of times you eat out or grab a coffee and take a list to the grocery store to stay on track.

  1. Receive gift funds

If you have family members who would like to help you achieve your dream of homeownership, they can provide you with gifts funds to boost your down payment savings—and you won’t have repay them as you would a loan. Homebuyers who receive gift funds towards a home purchase will have to furnish a gift letter signed by the donor to document that the funds do not have to be repaid.

By making an appointment with your credit union early in the process, developing a savings plan with a realistic goal and sticking to it, you can move closer to your goal of a down payment—and that will move you closer to your primary goal of homeownership.

This educational article is provided as a courtesy by your credit union’s home loan partner, myCUmortgage. For information regarding your unique home loan needs, please work with your credit union loan officer.