As rent goes up, it becomes harder and harder to save up for a down payment. But it’s not impossible. It’s important to be debt-free before you start saving for a down payment and to have 3-6 months of expenses in your savings as a backup. So once you have that done, you can follow these steps to save up for a down payment.
- Have a Plan
- Reevaluate Your Budget
- Pause Your Retirement Savings
- Get a Side Job
- Sell Stuff
Before you start throwing money into a savings account, you need a plan. What is your house budget? How much can you afford? These questions need to be answered so you know how much to need to save. Plan to save at least 10% of the house cost, but it is much better if you can save 20%. When you put down 20% it means you don’t have to pay mortgage insurance.
Try to have your entire down payment saved up within 3 years. Calculate out how much you’ll need to put away each month to make this possible.
In order to start saving for a down payment, you’ll have to cut out expenses elsewhere. Go through your spending and start cutting things that you don’t absolutely need such as cable, a gym membership, eating out, and name-brand items. Find other ways to cut costs and start putting that money into a separate savings account.
If you’re already saving for retirement, that’s really great! But if you haven’t yet bought a house, pause those retirement savings for a few years and put those savings into a down payment. Once you’ve bought your house, you can start putting savings into retirement again. Don’t pull money out of your retirement savings though. That money is tax-deductible, but if you pull it out, you’ll have to pay taxes on all of it.
A side job doesn’t need to be exhausting. Do something you love to do, like walking dogs, dog-sitting, tutoring, or driving for Uber or Lyft. Put all the money you earn from this job into your down payment savings.