How to Save for a Down Payment in 3 Steps

If you are ready to buy your own home, chances are you may have asked yourself, “what is adown payment? How do I save for a down payment? How much should I put down on a home?”While the amount will vary greatly based on each potential homeowner’s situation, there are a fewsteps you can take to prepare for your big purchase. Explore our guide to help you understand downpayments and how to start saving now.

What Is a Home Down Payment?

A down payment is simply an initial payment that you make towards the total cost of a house you planto buy. You typically pay a percentage of the home’s cost, with the mortgage you get making up the difference. The down payment could be as little as 3% or as much as 20%. However, your financialsituation and the type of property you are buying may also play a role in how much money you have to putdown to purchase the property.

Howmuch should you put down on a house, though? The good news is that you can often choose howlarge of a down payment to make – but the decision is not always easy. Some people believe biggeris better, while others prefer to keep down payments as small as possible. Take some time to evaluate thepros and cons of each option and decide which is best for your situation.

Start Saving for a House Now

Saving money for your down payment may seem daunting, especially if you are aiming for close to20%. Here are three steps to help get you started:

Set a Goal

The first step in the process is to determine a timeline for when you anticipate becoming ahomeowner, get an idea of housing prices and start saving accordingly. For example, if homes in the areayou are interested in sell for about $300,000, and you would like to buy in five years, making a 20% downpayment ($60,000) would mean saving $1,000 a month.

Evaluate Your Finances

Once you have a goal in mind, review your current spending to determine what is a necessary expenseand what is not. Where can you tighten your spending? What can you not afford to live without? Do notthink of this as giving up what makes your life enjoyable. Instead, think of this as an opportunity to getcreative. Try meal prepping instead of eating out or ordering in. Invite friends over for a game night insteadof going out on Saturday night. Other ways you can save more money for a down payment include:

• Pay down high-interest debt. Put additional money towards paying off high-interestdebt faster so that you can save for a down payment sooner. This also helps improve your credit score,which is one factor lenders look at when you apply for a mortgage loan.
• Skip a resort vacation. Instead of splurging on airfare and accommodations for yournext vacation, enjoy some time off exploring popular destinations within driving distance of yourhome.
• Put aside extra income. Instead of using a work bonus to buy a new TV, put themoney towards your down payment.
• Pick up a second job. Earnings from a second job could help you make substantialcontributions to your down payment savings.
• Shop around. When was the last time you got a car insurance quote or negotiated alower rate for your cable or phone bill? Little changes like this could make a significant impact overtime.

Create an Ongoing Budget

Once you have assessed your finances, it is time to start tracking your spending. Experts suggestkeeping an eye on specific categories like meals out, personal care and entertainment rather thanscrutinizing every single purchase. Many apps — like Mint, BillGuard and You Need A Budget — will give you a big picturelook at your finances so you can see how you are spending money. You can also choose a budget guideline tofollow, such as the 50/30/20 plan, where you allocate:

• 50% of your take-home pay to necessities, such as housing and car payments
• 30% to discretionary spending
• 20% to your financial priorities, like savings and debt

Do not forget to regularly look for opportunities to cut back on "fun” expenses (new clothes,extravagant nights out, new games, etc.) so that you can reallocate money to savings.

Understanding how to save for a down payment is one of the first steps in the homeownershipprocess. Are you ready to start your home buying journey? Explore and compare Perry Homes’move-in ready properties to find your dream home today!