6 Creative Ways to Save For a Down Payment on a House
You need to save up a down payment of between 10% to 20% if you hope to have access to better interest rates, according to an article on Forbes.com. And yet, if the average renter earned the national median income ($56,784 per year) and saved 20% of their income each month to put towards a down payment, it would take 77 months (or nearly 6.5 years) to build up a 20% down payment for a home worth $216,000. Unfortunately, not everyone makes the national median income, and not everyone has the ability to save at that pace. For those of us living on means somewhere in between, the following creative ways to save for a down payment on a house can help (once you know how much you need).
Get a side hustle
The internet provides several ways of making extra money such as sharing videos for pay on Facebook, Instagram, and other social media sites. You can also sell photos on sites like iStockPhotos or work as a virtual assistant on Elance or Upwork.
Some opportunities are not online, such as dog walking, dog sitting, or baby-sitting for friends or relatives. The money you make can go directly into your down payment fund.
Lower your retirement savings contributions
Investment management firm Fidelity recommends that you put aside at least 15% of your pre-tax income a year for retirement. If you can't save 15% of your salary, save as much as you can, and make sure you save enough to get the full benefit of your company's matching contribution if one is offered. Don't turn away free money! While you're at it, you can also look into the possibility of selling some of your stock investments.
Stick to a budget
Many people wonder about how to save for a down payment on a house by sticking to a budget without sacrificing their quality of life. Ditching cable, not dining out, avoiding impulse buys, and not upgrading to the newest gadget are just some of the ways you can do this. Sit down and build out a monthly budget to get a better view of the expenditures you can live without. Another tip is to set up an automatic deposit which will allow for a specific amount to be taken out of your paycheck and deposited into your down payment funds account.
Use a separate savings account
Don’t keep your down payment funds in your home account because you may end up spending it on everyday expenses. Saving these funds in a separate account will make it easier for you to calculate how much you have saved so far and how much more you need. Consider putting the money in a high-interest account that cannot be accessed until it matures.
Pay less rent
The obvious way to do this is by moving to a house or apartment with lower rent. Another alternative is to get a roommate or roommates. Of course, you also could try to negotiate down your rent with your landlord, but that is less likely to work.
Once you do move to your new home or apartment, set up auto-transfer of the monthly rent difference to your down payment savings account.
Explore a gifted down payment
Receiving a gifted down payment is among creative ways to save for a down payment. A family member, employer, or business partner may gift you a down payment but you have to prove the money is a gift. You can do this by providing a copy of the giver’s account statement for the source of funds, a record of the transfer to your account, and a gift letter declaring that repayment is not required. Or, if you have affluent relatives who have left you money, consider dipping into your inheritance. You may recover some of that money over time by building equity in your home.