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Top 7 tips for saving for a down payment

Date posted:  6/27/16 09:00:00 AM Saving for a down payment

Before you decide to purchase a home, you need to familiarize yourself with the process, evaluate your financial situation and ensure you can provide a sufficient down payment. When you have cash up front, it improves your chances of qualifying for a home mortgage with a lower interest rate, which can translate to substantial savings down the road. 

Unfortunately, for many hopeful homeowners, saving the recommended 20 percent down payment can be quite difficult. With student loans, credit card debt, high rental rates and other financial obligations, it may be difficult to save money to use toward the purchase of a house. 

While it isn't necessarily an easy feat, it's still possible to build your savings to purchase real estate. Follow these seven critical tips for building funds for a down payment on your very own home: 

1. Take small steps 
Don't fixate on the ultimate goal as this can feel overwhelming and discouraging. Instead, break it up into bite-sized milestones.

Reward yourself with your favorite dinner or a trip to the theater to see a new movie when you hit one of your savings goals. When you divide it up, it makes it far more tangible and easy to manage. 

2. Trim your budget 
It's always a good idea to regularly evaluate you budget and change it to meet new needs or varying income. When you are looking to invest in a home, you'll need to reduce unnecessary expenses, noted AOL Finance. From coffee runs to nights out with friends, cut down on how much money you are allotting to these activities. Consider dedicating a limited amount of money to these less necessary purchases throughout the week and stick to that budget. 

"Keep in mind when you're in super-saver mode to ask yourself out loud, 'Do I need this or want it?' before you buy anything," said Anna Behnam, an Ameriprise financial advisor. "Shop in physical stores if possible (rather than online) and use physical cash rather than credit."

You will also want to find other ways you can trim spending. Moving to a smaller apartment, moving in with roommates, cutting cable and making other sacrifices will help you reach your financial goals faster. 

"Going from a two-bedroom to a one-bedroom can drop your rent by 25 to 30 percent, depending on where you live," noted Rob Jupille, president of RTJ Financial Management. "If you have a spare room, take in a renter until you save what you need."

U.S. News & World Report also suggested reaching out to your current landlord to negotiate your current rent

3. Learn about loan programs 
Before you start saving, make sure you know what kind of loan you are hoping to be approved for. Several low down payment programs are available that you may qualify for, Nerd Wallet indicated. Some of these include loans through: 

  • The Federal Housing Administration 
  • The U.S. Department of Veterans Affairs 
  • Freddie Mac
  • Fannie Mae
  • The U.S. Department of Agriculture 

Knowing what other alternatives are available may impact how much you ultimately save for a down payment on a home. However, remember that if you decide to apply for low down payment home mortgages, you may also be required to pay primary mortgage insurance until you reach 20 percent equity. 

4. Sell items you no longer need or use 
U.S. News & World Report also suggested throwing a garage sale to help increase your fund. While it likely won't pay for the entire down payment, it will help you reach your goal faster. 

In addition, by selling some of your belongings now, you will have fewer items that need to be moved in the future when you move into your new house. 

If you don't want to hold a physical garage sale, there are alternate options. For example, selling items online can be an easy way to increase your savings for a down payment. Just ensure you meet any buyers in a safe, public place and request cash for all transactions. 

5. Consider taking on a part-time job 
Applying for another job when saving for a down payment is another way you can drastically increase your saving efforts. You can use the extra funds exclusively for your savings account or as supplemental income while you funnel your money toward the future purchase of a home. 

Freelancing in your field outside work is a great way to capitalize on your current skills and bring in a little extra cash. For example, teachers can offer to tutor or writers might want to place an ad for producing content. 

In addition, you may want to turn current hobbies into a little extra cash as well. Take the things you love doing most and offer them as a good or service to the public. In many instances, you can make a great deal of money selling art, paintings, photography, woodworking and other items you have considered your craft for many years. 

Use social media and other online platforms, like Pinterest, to promote your work, as it can help you add clients or projects

6. Refinance current debt 
Student loans or car loans might be taking a substantial chunk out of your income. To expedite the process of saving for a down payment, consider refinancing these debts for lower monthly payments or lowering the interest rate. These small changes can make a big difference while you are working toward your goal. 

7. Reach out to your financial advisor 
When you want to save money faster, you should consider speaking with your financial advisor. He or she can provide valuable insight about how to improve your spending habits, where you can invest money to expedite the process and how you can better reach your financial goals. 

In addition, he or she can share financial tools with you that may help you visualize your savings efforts and see where you can improve to become more efficient. Strategic saving is key, and a professional is better equipped to help you with this. 

Don't hesitate to reach out for further guidance as it will likely help you land your dream home much faster than if you were to try to save for the down payment on your own. 

The journey to becoming a homeowner can be challenging. However, if you are able to conquer hurdles like saving for a down payment, you will find that buying a home is one of the most exciting milestones of your life.