Saving for a down payment is one of the major hurdles most first-time homebuyers face on their journey towards homeownership. However, with a clear savings goal, a solid savings plan, and adopting a few savings strategies, you’ll be well on your way to saving for your first home.
1 – Start with a clear savings goal
Start by calculating how much you will need for your down payment and closings costs. FinLocker users can use the Home Affordability calculator, which will estimate a total home budget based on your income, and display the minimum down payment for a Conventional (3%), FHA (3.5%) and VA (0%) home loan, and the estimated closing costs for each loan type.
The example scenarios below are based on a 30-year mortgage term at a 4.25% interest rate.
On a $75,000 annual income you could afford a $265,000 home with a Conventional loan
- Monthly Payment: $1750.67
- 3% Down Payment: $7,940.00
- Est. Closing Costs: $10,587.00
- Total to Save: $18,527.00
On a $75,000 annual income you could afford a $286,808 home with an FHA loan
- Monthly Payment: $1937.03
- 3.5% Down Payment: $10,038.00
- Est. Closing Costs: $11,472.00
- Total to Save: $21,510.00
On a $75,000 annual income you could afford a $411,506 home with a VA loan
- Monthly Payment: $2530.59
- 0% Down Payment: $00.00
- Est. Closing Costs: $16,460.00
- Total to Save: $16,460.00
2 – Create a household budget
1. Write down your bills and regular expenses.
• Bills that are the same each month, like rent
• Bills that might change slightly each month, like utilities
• Bills you pay once or twice a year, like car insurance
• Minimum credit card or loan payments. Anything beyond the minimum goes into the savings and debt repayment category.
• Transportation or Gas
• Entertainment, Cable
• Unplanned expenses, like car repairs or medical bills
• Child care or other expenses you need so you can work.
2. Write down how much money you make after tax.
3. Subtract your bills and expenses from how much money you make
4. Review your budget to see what you do not need or how you could spend less.
5. At the start of each month, plan how you will spend the money you earn that month.
6. At the end of the month, see if you spent what you had planned.
3 – Avoid your spending triggers
While you were reviewing your bank account transactions, you may have noticed a few spending habits that you can adjust to find additional savings.
We all have those places or people that make us want to spend a little too much. Maybe it’s a discount department store or auto shop, or the need to upgrade your phone with each new release. Until you’re feeling confident with your budget, limit your contact with those triggers, so you can focus on what you’ve planned to spend in that category. Challenge yourself: Can you resist the temptation to upgrade your phone while you’re saving and working on improving your credit?
4 – Go on a 30-day spending diet
For one month, only make essential purchases: no new clothes, no take-out, no new gadgets or toys. Deposit the money you saved each week into your savings account. At the end of the month, see what areas you can maintain to keep your savings growing.
5 – Think before you shop
Buying something impulsively, can throw your budget out of whack. Instead, give yourself 24 hours before purchasing. You’ll typically wake up the next day a little less excited about that deal, which can help you feel confident about making future buying decisions rationally.
6 – Look for savings before you shop
If you regularly shop at certain stores, you probably know when they offer their best deals, so wait to shop then. Check out your supermarket’s weekly sales so you can plan your shopping list, and stock up on the sale items you regularly use. Save even more at the supermarket with coupons online or in the supermarket’s app.
7 – Adjust your insurance
If you only use your car for local trips, ask your auto insurance company if you can adjust your insurance coverage to save money on your monthly premiums. An independent insurance broker can also find other ways to save, such as increasing your deductible amounts or combining multiple policies with the same provider.
8 – Open a separate savings account
Reduce the temptation to spend the money you’ve been saving by stashing the money in a separate savings account. If you’ve noticed that you can regularly save $100 from each paycheck, ask your employer to set up an automatic deposit for a set amount from each paycheck into this account. Look for a financial institution that pays interest on the savings account.