Key insights:
- The down payment on a home may seem daunting, but there are many ways to make it manageable.
- If you’re serious about saving for your down payment, be proactive about setting up savings accounts and applying for down payment assistance programs.
- Let technology take over; you can save for your down payment via apps that automate the savings process.
When becoming a new homeowner, the excitement to seal the deal may be overshadowed by fear of the down payment. The lump sum of money that equates to the down payment on a home is difficult for many homebuyers. In fact, a poll conducted by the Minnesota Association of REALTORS® found that 81 percent of Minnesotans view the down payment and closing costs as substantial challenges when buying a home.
Even if the down payment seems intimidating at first, it’s important to save as much as possible toward your payment. By making a sizable down payment upfront, you’re likely to save in interest over the life of the loan and you may receive more favorable mortgage loan terms as well.
If you’re not earning as much as you’d like or you have debt you need to pay down, how do you save for a down payment? Here are seven ideas to get you started.
1. Sign up for down payment assistance programs
State-run programs in Minnesota and Wisconsin, known as down payment assistance programs, can help homebuyers foot the cost of their down payments. These programs are available to both first-time homebuyers and seasoned homeowners that meet certain criteria. For example, you may need to meet income limits, have an eligible minimum credit score, or purchase a home within a certain price range.
2. Plan your savings in advance
By planning your savings early, you’ll know where you stand when it’s time to take out a mortgage. While setting money aside, be sure to talk with a lender. These professionals can help you prepare your finances for buying a home. Plus, lenders may give advice on how you can adjust your budget or clean up your credit so you’re best positioned for favorable loan terms and a healthier down payment.
3. Save money without thinking twice
When it comes to saving money, it can be easier said than done. So, set yourself up for success by automating a percentage or set amount of each paycheck into a savings account. As the saying goes, out of sight, out of mind — you’ll be less likely to spend the money when you don’t see it sitting in your checking account.
You might also consider paying for necessities with cash only, like groceries and gas. Doing so has helped many potential buyers better understand their finances and budget.
4. There’s an app for that
Love technology? Consider downloading a savings app on your smartphone. This small but meaningful adjustment could provide the extra boost of savings you need to afford your down payment.
Qapital is a savings app that allows you to put a timeline on your money-related goals. Then, it encourages you to put change aside to save within the app. Furthermore, with Qapital, you’re able to set goals and challenges with others. So, if you’re working toward purchasing a home with your partner, this app could be a great option. Digit, another savings app, analyzes your bank account and estimates how much money you can spare without notice. Then, it tucks these small withdraws away in a savings stash.
5. Open a dedicated savings account
Minnesota supports first-time buyers with an opportunity to open a savings account dedicated to financing and closing on their home purchase. By opening a first-time buyer savings account, you can save toward your down payment while also benefiting from tax incentives. The interest accrued in your first-time buyer savings account will be free from state taxes. Be sure to consider this option when financing your down payment.
6. Be thankful for outside contributions
You may also be fortunate enough to receive mortgage gift funds from generous friends or family. (Be sure to comply with a specific list of steps in order to utilize your mortgage gift funds.)
Another way to gather extra money toward your down payment is through long-term GoFundMe or other crowdfunding-style campaigns. If your friends and family still give birthday presents, you may consider asking your nearest and dearest to contribute to an account dedicated to your down payment. A few hundred dollars here and there can end up making a significant dent in your down payment.
7. Get a side gig
If you have extra time to spend earning money toward your down payment, consider joining the gig economy. Whether you become a rideshare driver or you rent out part of your home, you can make extra cash on your own terms through a gig job.
Ready to purchase a home?
Be sure to contact Edina Realty or one of our agents. We can help you analyze your finances and find a home with a down payment in your budget.
For more tips on buying a home, follow #BuyerInsights on Facebook, Twitter, YouTube and Instagram.
