Saving for a Home

How to use budgets, goals, savings, and expenses to your advantage.

Saving for a down payment on a home can seem daunting, especially if you are just starting out. However, it is an essential step to take if you want to become a homeowner. The good news is that there are many strategies you can use to save for a down payment. In this blog, we will discuss some of the most effective methods for saving for a down payment.

The first step to saving for a down payment is creating a budget. A budget will help keep track of your income and expenses and identify areas where money can be cut back to save more money. One way to do this is writing it down either on paper, in an excel document or in your phone notes. Whatever method you like better, the idea of writing down your monthly income and monthly expenses will break it down. Personally, using an excel spreadsheet has benefitted me to write down all my monthly income and expenses and I can see how much money I should allow myself to spend. This writing down process can help you become more diligent in sticking to your budget and not overspending. When money is spent, write it down in a log for the month. Being able to reflect on your budget and spending and see where there is a need for more discipline or celebrate the money growing from the budget working! You can also download some apps for assistance in creating budgets, but really all that’s needed is your income and expenses and you can sail from there!

Setting up a savings goal is going to benefit you greatly! First determine the percentage you’d like to pay on a down payment of a home, if you are not certain on what you’d like to spend, aiming for a higher amount will only benefit you. There is a spread of down payment percentages ranging from 0% down to 20% or more. Although be aware that 0% will typically be eligible for Veterans, as low as 3% down for conventional mortgages, as low as 3.5% for FHA Loans, and goes up from there. Working with a loan officer for the best option for you would help navigate what your situation may require. For example, purchasing a $250,000 home with at 5% down payment means you’d want to save $12,500. To reach the goal of $12,500 within a year, you are looking at saving $480 per paycheck.

One of the best ways to save for a down payment is to automate your savings. Set up automatic transfers from your checking account to separate savings account each month. Using a direct deposit form from your employer will provide you the option to write down how much money goes into what account; your bank should also have a similar tool. I use this and it allows me to see my expense funds being pooled into one place, my spending money into my checking account and roughly 20% of my paycheck is put into a savings account. This tool will save money without the hassle of you having to think about it.

Another way to help with money management is to cut back on unnecessary expenses. Cutting back on any subscriptions, eating out, and shopping for cheaper groceries. If you like shopping, then start with deleting those apps from your phone that you seem to spend money on, this will put it out of site and out of mind. Another suggestion is to buy used items, there are so many thrift stores with a variety of items to create a personalized home that still represents you. The clothing at thrift stores is usually full of character and often times in good condition! Lastly, patience can be a very budget friendly tool. The desire to buy things can be a temptation to do it right now but waiting before you buy can give you time to save for it, think about it, and maybe get a lower price with a promotional discount. These little sacrifices can generate big savings. 

The last thing to suggest would be to earn more money. You can boost your savings with a part-time job or a side hustle of selling unused items. There is another way to earn money with skills you already have, just need to optimize them to work for you!

Saving for a down payment on a home is a big goal, but it’s achievable with the right strategies in place. By creating a budget, setting a savings goal, automating your savings, cutting back on expenses, and earning more money, you’ll be well on your way to becoming a homeowner!

Minnesota Homebuyer’s connection (2022) Minnesota Homebuyer’s Connection. Available at: https://mnhomebuyersconnection.com/ (Accessed: March 24, 2023).

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