Are you tired of renting? You are not the only one. The pressure to buy a home right now is real--especially in this crazy market. Fluffy is getting tired of being pushed up and down four flights stairs, multiple times per day. Is it unreasonable to want a piece of grass for yourself?
You might be ready to become a homeowner if you like the sound of it. The problem is that you don't have enough money to make a downpayment. How are you supposed save money for a house when it is so expensive to rent?
Listen, we get it. It is not easy to save for a house (and may take you a little longer than you would like), but it possible!
How to Save Money on a House
It's easier than you might think to save a down payment on a house, especially if you follow a plan. The key is to know how much money you have available and how much you can afford.
Psst: This is where your zero-based budget comes in handy. Let's not forget about the topic. You can use the numbers 15 or 25 to figure out how much money you should be spending on a house.
A 15-year fixed rate mortgage should not exceed 25% of your monthly take home pay. This includes principal, interest and property taxes. It also includes homeowner's insurance, private insurance, mortgage insurance, and homeowners association fees.
And here's why: A 15-year fixed-rate conventional loan is the overall lowest cost mortgage--it saves you tens of thousands (even hundreds of thousands) of dollars in interest fees compared to other types of mortgages.
Your mortgage payment should not exceed 25% of your monthly take home pay. This is to ensure that you have lots of budget flexibility to meet other financial goals and keep your house from becoming your primary residence.
Five Steps to Save for a Down payment
Once you have a clear idea of the type of mortgage that you require, you can start saving money for your dream home. Saving so much money can seem daunting. We promise, it is not difficult to save so much money. All you need is a plan. Are you ready? Let's get started:
Step 1: Set a clear savings goal
It is important to determine the exact amount of money you require to save for a downpayment. What is a good downpayment? You could just walk up to the front door and hand the owner cash. However, that is not realistic for everyone.
If you are among the many people who cannot afford a house, these are the four questions you need to ask:
- What should I spend on a house in my budget?
It all depends on your lifestyle, income, how you spend your money, how your budget works and what kind of house you want. As we mentioned earlier, your goal is to not spend more than 25% of what you earn monthly. This will vary for everyone.
- What amount should I save to pay a downpayment on a house?
A 20% down payment is recommended. This gets you out of paying for something called private mortgage insurance (PMI). To protect your lender in the event you stop making your payments, PMI is an additional fee to your mortgage.
You can't swing 20% It's OK. You should not go below 10%. Otherwise, you will be paying more in interest and fees which could lead to you being further in debt for many decades.
Are you satisfying with your salary you have money at the end to save some for your future. If you still don't know what is considered a good salary in US Click here.
- How long will it take to save enough money for the down payment?
It is up to your patience, but hard work and perseverance really do pay off. Set a goal to save enough money in the next two years. It's important to not drag it out any longer than this though. There are many other financial goals you can pursue, including your retirement or the college fund for your children (if you have kids).
- Where can I deposit money to make a downpayment?
You'll need to place your down payment somewhere that is easy to access, but not too easy. Remember that a down payment is and not an investment. So stashing that cash in a money market savings account will get the job done. While you may not make a lot of interest, you will not lose any money.
Let's say that you have 24 months to save money for your down payment and closing costs. Once you have your goal in place, it is time to accelerate your savings.
Step 2: Streamline Your Budget
Let's begin with what you already make each month. Let's get budgeting!
It will surprise you how much money you can save by paying attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on saving for a house:
- Take a break from your gym routine: $60 per month
- For special occasions, save money on dining out: $200 per month
- Reduce your clothing budget $100 per month
- Buy generic: $160 per month
- Reduce the cable $110 per month
These tips could help you save $630 each month. This adds up over 24 months to save you more than $15,000 Get creative to find even more ways to save.
Step 3: Temporarily press Pause on Retirement Savings
This might seem strange if you are already saving for retirement. After all, at Ramsey, we normally recommend you start investing 15% of your household income for retirement after getting your full emergency fund in place.
If you are planning to buy a house in the soon future, you can put off your retirement savings and use those funds for your down payment. Remember that you are in control of how gazelle-intense you want to be. It's fine if that's what your heart desires. It's temporary. You can go back to your goal of saving 15% once you have settled in your new breakfast spot. This one to two-year detour is not a five year pause.
It's as simple as this: If you were to invest $500 per month in 401(ks) and IRAs, but instead use that money towards your down payment savings you could save approximately $12,000 over the next two years. This is a huge increase for your downpayment!
Pro tip: Do not borrow from your retirement accounts or cash out of them to save for a downpayment. You'll not only be subject to taxes and penalties for early withdrawals, but you will also damage your long-term growth of retirement savings. This could lead to you losing hundreds of thousands of dollars in retirement. Yikes.
Step 4: Boost your Income
If you're looking for another way to turbocharge your income, there's nothing like picking up a side gig or a second job. Side hustles don't have to be difficult. Start with what you are passionate about when you start thinking of ideas. These are some ideas to get you started:
- Do you like driving?You don't have to be a stranger, or make deliveries, but you can still make some extra cash through Lyft and Uber.
- Do you enjoy teaching?You can search online for tutoring opportunities or ways to teach English in other languages. You could make even more if you have an advanced degree.
- Love pets?Tell your coworkers and friends that Rover is available for watch when they are out of town. You can do fur therapy and make some money.
You might be asking yourself: Is it worthwhile? It's almost like asking Dave Ramsey if he hates credit cards. It's totally worth it!
Let's suppose you have a side hustle where you work 16 hours per week and earn $12 an hour. That's an extra $153.60 per week--after taxes! Keep that up and you'll have more than $15,974 for your down payment savings in just 24 months.
Step 5: Reduce the Extras to Save More
It's time for you to be tough and reduce your spending. It may hurt but it is important to keep your eyes on your why--homesweet home. These are some ideas to help you get started.
- Avoid summer vacations.It's going to hurt but it will be worth it in the end.Avoid the expensive summer vacationsInstead, put that money into savings. That alone could net you $2,0001
- You can sell some things.Are you surrounded by a lot of "stuff?"It is best to sell it It. It.You can use online platforms like Poshmark, thredUP and even Facebook Marketplace to find gently used clothes. eBay is for the rest.
Are you seeing a garage sale in your area? A garage sale can bring in some extra dough like nobody's business. A Saturday morning garage sale can bring in $500.
- All the bonus or annual raise money that you receive should be saved.Are you looking for a Christmas bonus? A bonus for a job well performed? You can tell the big-screen TV that you don't need it, no matter what purpose. Instead, save your bonus money. This could result in a quick $1,500 increase!
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