Saving for a down payment on a home may seem like a difficult and intimidating process, especially for first-time home buyers, but it is actually a simple goal to achieve if you apply some planning and organization. Like any other major decision in life, it is critical to develop a practical plan that you can follow given your particular situation.
First, you should set a monetary goal. How much money do you need to have for a down payment? There are several factors that will influence this decision such as home price and financial ability. Typically, buyers strive to save10- 20% of the cost of the home as a down payment. Ideally, it is better to be closer to the 20% mark. Then, you can set a deadline of when you need to have the money as well as how much money you should be saving each month in order to reach your goal by the given date. Having a solid number in mind for a down payment will not only give you an idea of how to handle your expenses, but will keep you motivated as you get closer and closer to that goal.
The next thing you should do is create a separate bank account to house your down payment savings. Not only will this allow you to see exactly where you are without the clutter of other financial information, but it will also ease the temptation of spending the money you have worked so hard to save. Another thing to consider is having the monthly amount you want to save deposited directly into the separate account. This will just make the process run much more smoothly and help keep you on track.
Cutting down on extra spending while you are saving for a down payment is the most difficult, yet, aspect of this process. You should take a hard look at your current financial situation. Then, you should decide what spending habits are necessary and which ones you could live without. The idea here is to start saving every penny that you possibly can. This may mean cutting back on your favorite hobby, shopping, or eating out at restaurants. This is also a good time to wipe out credit card debt, car payments, and any other large expenses so you are able to focus as much income as possible on your down payment goal. Most importantly, while saving for a down payment, do not take on any extra expenses that will detract from your goal.
The process for saving for a down payment is like saving for anything else in life. It requires a little sacrifice in order to reach your goal. If you make a plan and set smaller goals for yourself, you are much more likely to stay on track and feel like you are working toward something worthwhile. With a little organization and planning you will be well on your way on saving enough for a down payment for the home of your dreams.