Learn how to save for a down payment for your next real estate purchase
Getting the money for your down payment;
Whether you want to build a real estate empire or simply do your first house hack, a down payment is critical. You will not be able to make your first foray into the world of real estate without amassing this critical amount of savings.
Before you assume that saving enough for a down payment is beyond your budget, think again. With a little bit of creativity and a lot of discipline, you can learn how to save for a down payment fund quickly. Once you are ready to buy your first home, you will be glad that you made the effort to build this down payment.
Let’s dive into exactly how you can build your own down payment fund.
Set a goal
First, you need to determine how much you want to save. Think about your home buying goals and how much you are willing to spend on a home.
You could set your goal to be 20% of the approximate price range you are looking at. Although you may not need 20% in all situations, it is a good starting point. Generally, if you put down less than 20%, you’ll be forced to pay PMI and higher interest rates.
Once you have a goal, you can start moving towards making that a reality.
Opt for a lower down payment
Another lower down payment option to consider is the FHA home loan program. With FHA loans, you would only need to put down 3.5%. Even some conventional loans will allow you to put down less than 20% of the home’s value.
The idea of putting less down is naturally enticing. However, a larger down payment can unlock lower interest rates and lower monthly payments. Weigh the benefits of saving more for a down payment with the costs of putting less money down on your home purchase.
How to save money for your down payment
After you’ve considered your options and set a reasonable goal for your down payment, it is time to start saving! Luckily, there are many ways to achieve your savings goal. Let’s take a closer look at a few of your options.
Pick up a side hustle
A side hustle is a perfect way to increase your savings quickly. As you increase your income through a side hustle, direct this new income towards your down payment fund.
Depending on the side hustle, you could reach your goal in a matter of a few weeks or months. No matter what, it will accelerate your progress.
Consider using your other savings
If you already have money saved, then you might want to use that. Consider the purpose of those funds before taking this route.
If the funds are for general use, then it could be a great idea. If these funds are earmarked for emergency situations, then it is likely not a good idea to pull these funds.
Take a closer look at your savings before deciding to use funds that you already have.
Sell your stuff
Everyone has things lying around that house that are just collecting dust. If you can live without something, then consider selling it to fund your home purchase.
Downsize your current living
If you are currently renting, take a look around your current space. Could you downsize or downgrade for a temporary period? If that is a possibility, then you may be able to easily meet your goal.
For example, if you moved from a three-bedroom rented house to a two-bedroom apartment, you could save a few hundred dollars a month. Although the amount you save will vary based on where you live, this could be a viable way to save money quickly if you are willing to change your current situation.
Consider borrowing from your investment accounts
If you’ve diligently invested your earnings into investment accounts, then you could pull the money to fund your down payment from this source. Of course, you’ll need to consider your long term financial goals to determine if this is a good option for you.
If you don’t want to pull any money out, then you could consider slowing down your contributions for a short period of time to make your home purchase happen. Once you’ve funded your down payment, then you could increase your contributions again.
The bottom line
If you’ve decided to move forward with real estate investing or your first home purchase, then it can be a very exciting time in your life. Don’t let the hurdle of saving for a down payment keep you from making your dreams a reality. Instead, make a plan to save and stick to it.
Whether you need to pick up a side hustle of cut back on other expenses, you can save for a down payment. Once you make that happen, you’ll be ready to start your real estate adventure.