Smart Ways to Save for a Down Payment
Saving money for a down payment can be a huge undertaking. Everyday expenses can leave you with little disposable income, making it increasingly difficult to build a sizable savings account.
But while coming up with cash for a down payment (and closing costs) isn’t a walk in the park, it is possible with a few sacrifices. So, if you’re thinking about a home purchase in the next few years, here’s a look at different ways to save money for a down payment and other mortgage-related expenses.
1. Supplement your income
Finding a better paying job or getting your boss to agree to a pay raise isn’t always an option. But this doesn’t mean that your income must remain stuck in the same place.
If income from your regular job is enough to cover your monthly expenses, look into getting part-time work or starting a side hustle to supplement your income. You’ll build your down payment fund faster if you save 100% of income earned from a part-time job or a side gig.
Creative options to supplement your income include:
- Become an Uber or Lyft driver
- Give music lessons
- Provide consulting services
- Clean offices in the evenings
- Apply for freelance work
An additional $150 a week can generate $7,800 a year in extra income (before taxes, of course). If you qualify for an FHA home loan with 3.5% down, this amount is what you would need as down payment on a $220,000 purchase.
2. Save your tax refund
If you’re fortunate enough to get a sizable tax refund or work bonus each year, save 100% of this money and put it toward your down payment fund.
You should also save other non-work-generated money you receive throughout the year. This includes cash given to you as a graduation, anniversary or birthday present.
3. Use gift funds
It might come as a surprise, but several mortgage programs allow homebuyers to use gift funds for their down payment and/or closing costs.
These funds can usually come from a relative or an organization. However, the donor must provide a gift letter that includes their name, their relationship to you, and the amount of their gift.
There are specific rules when using gift funds for a home purchase, which vary by mortgage program. Your Cherry Creek Mortgage loan expert can provide more information on the requirements.
4. Sell your stuff
In all likelihood, you have a lot of stuff packed in your closets, attic, basement, and garage that you no longer use. Rather than let these items take up space and collect dust, turn your unused treasures into cash. List these items for sale online or plan a yard sale.
You might not drum up enough cash for your entire down payment, but you’ll hit your goal sooner if you’re able to generate a few hundred or a thousand dollars.
5. Downsize and reduce your housing expense
Your current housing expenses can make it difficult to save money for a home purchase. If so, consider moving into something smaller temporarily to increase your disposable income.
Transitioning into a cheaper place can be a major inconvenience, but the end result may be worth the sacrifice. Move back home with your parents for a year or two or move into a home with less square footage. A smaller home doesn’t only reduce your monthly rent, it can also reduce your expenses for utilities.
Reducing your housing expense by $300 a month can increase your down payment fund by $3,600 a year.
6. Get an online high-yield savings account
Once you have a plan to save money, keep your down payment funds in an online high-yield savings account. Online banks typically offer higher rates on savings accounts than brick-and-mortar banks, resulting in a higher return on your money.
A down payment is one of the biggest obstacles to homeownership. However, Cherry Creek Mortgage offers a variety of low down payment solutions, whether you’re buying your first home or your fifth. Call today to learn about our wide selection of mortgage programs.