How to Save for a Down Payment This Year
One of the biggest challenges for any couple looking to buy their first home is getting a down payment together. Like many challenges in life, there may be short term pains for long term gains.
The first thing to consider is how much of a down payment is needed in 2023?
The good news is that the average down payment for a house is far less than many first-time home buyers believe. According to the National Association of REALTORS® Research Group, the current median percent for a down payment is only 13%.
But the news is better than that. For many young, first-time buyers the median is only 8%, with many loan programs allowing down payments in the 3% range.
Minimum down payments by loan type:
- Jumbo Loans – 10% to 20%
- FHA Loans – 3.5%
- Fannie Mae & Freddie Mac (Conforming Loans) – 3%
- VA Home Loans – 0% down
- USDA Home Loans – 0% down
Sources for a down payment include savings (the primary means of a down payment across most age groups), the proceeds from the sale of a previous residence, gifts from relatives and friends, and the sale of stocks or bonds. Tax refunds, pulling from IRAs, and loans from family are in the list too.
Saving for a Down Payment
If you’re a first-time homebuyer, you’re not going to have the sale of a previous residence to benefit you. With savings as the primary source for a down payment across most age groups, how do people approach acquiring the cash?
Saving for a down payment is going to require some discipline and sacrifice. The following basic tips are recommended by The American Bankers Association:
- You’ve probably been out looking at potential properties, so you have some idea of current home prices. Time to set a budget for your down payment and plot a timeline. For example, if you need to save $8,000 to $10,000 in the next 12 to 18 months, could you do it?
- Set up a separate savings account, along with automatic monthly contributions, so you can see your down payment grow during the year. If you’re a couple saving for a home, you may have two incomes to count on.
- Reduce your current monthly expenses. This can be a sacrifice but keep your eye on the goal. Check rates on car insurance, health insurance, cable, internet, and phone plans. Reduce costs where you can. Use coupons for groceries and see what necessities the local discount store can supply.
- Monitor your spending, especially the use of credit cards. Cards make it easy to spend without critical thought. Monitor your bills closely.
- Look for first-time homebuyer programs in your state and county. There may be loans, grants, and discount programs that you are not aware of until you seek them out..
- Celebrate savings milestones. Keep up your motivation by breaking your savings plan into small milestones and have a nice meal, a small party, or an evening out when you reach your first $5K.
Can you save what you need in a single year? Pulling together a down payment with a 12 month plan can require some extraordinary steps.
- Is there a way to increase your income? You’re going to need to work overtime (if that is available to you), find a side hustle, or ask for a raise to bring in that extra cash.
- Cut all the expenses you can that don’t drive directly toward your goal. That means no vacations, giving up restaurant and fast food expenses, buying fewer clothes, and cutting back travel to save gas. Smoking and drinking are expensive habits. The average smoker can spend close to $2,000/year on a pack-a-day habit. That could provide 20% of your goal and brings the benefit of a healthier lifestyle.
- Stop using credit cards and pay down what you can. Paying a debt may seem counterintuitive, but by doing so you are saving the interest that you would have paid. When you use cash wherever possible, you’ll be more aware of how much things cost and what you really want to spend those dollars on.
- Consider whether it is possible for you to move in with parents or friends and save rent toward the down payment.
- Do you have possessions you sell to help toward your goal? An ATV, a second car, those skis you haven’t used in years? What about jewelry, collectibles, designer clothes, or electronics (like that gaming console)?
Once you have the home of your dreams, the sacrifices will be worth it. You have years ahead to reacquaint yourself with the little pleasures in life that you’ve put aside temporarily for the greater goal!
Even if this is your second home buying experience, you’ll find solid information in our “First Time Homebuyer Guide.” This 40+ page guide delivers a range of critical information from Understanding the Mortgage Process and Types of Loans to Avoiding Discrimination and which states have no LGBTDQ+ Housing Protections.
Find the Help You Need
The LGBTQ+ Real Estate Alliance, a 501(c)6 organization, was launched in June 2020 by leading members of the real estate industry. The mission of the Alliance is to Advocate, Elevate, and Celebrate. The Alliance advocates for fair housing for all and promotes LGBTQ+ homeownership.