Are you thinking about buying your very first home? If so, it must be an exciting time for you! Be cautious though. Once you start looking for your perfect home, it can be easy to fall in love with something that is out of your price range and does not allow you to put 20% down. Before you even start looking, it would be wise for you to decide on the absolute maximum amount that you would like to spend and save aggressively to bank 20% of that target in cash. Not only will this make it easy for you to qualify for a loan at the bank, but it will also give you peace of mind after the home purchase. With 20% down, you won't need to worry about the home losing value and leaving you under water. With that much of a cushion, you will likely always have equity in your home.
So if you're looking at $200,000 houses and are trying to save up 20% for the down-payment, that means that you need $40,000. So how in the world are you supposed to save up $40,000? You might think that it's impossible, but it is most certainly not. Sure, it might take some time, but with the ideas listed below, you might even be able to save up this amount of cash in a single year.
Reduce Your Rent
After college, many young adults start renting a swanky apartment that costs way too much money and makes it very difficult to save money. If you truly want to save up money in a hurry, look at renting outside of the city above someone's garage for $500 a month or less. This will allow you to save up some cash in a hurry. Or, if you don't mind your parents, maybe you could crash in their basement for a year? The rent would certainly be cheap and you would probably have more time to earn that extra money since your mom would give you a hand sprucing up once in a while.
Get Rid of Your Expensive Car
There is no reason for a young adult (or anyone for that matter) to be driving a luxury and/or brand new car. If your car is worth more than $20,000, I say sell it. If you own it outright, then you can use the cash for the down-payment on the house. If you owe a bunch of money on it, I would still say sell it so that you can get rid of those ridiculous payments that are making it difficult for you to save up money. Instead of a flashy car, buy a ten year old dependable car for $2,500. They ARE out there (I have been driving one for two years), so go find it and focus on saving up for that home.
Pick Up a Second Job
If you are truly serious about saving up that massive down-payment, then I would advise working a second job for a few weekday evenings and on the weekends. Deliver pizzas, bar-tend, or serve tables at a classy restaurant. This money will add up faster than you think since it's all extra and is only earmarked for your future house.
Start a Side Business
If delivering pizzas doesn't sound all that appealing to you, then maybe you would earn more by starting your own business. Start thinking about what you could do that is cheap to start, but can earn you quite a lot of money per hour. If you are handy, then perhaps you could fix cars or reconstruct houses. If you are good with computers, then maybe you could write some programs for local businesses. If you don't feel like you have any skills at all, then you could start your own car detail operation. All you need is some car soap, water, and a vacuum and can charge more than $50 a car. If you do a good job, then word will likely spread and the money will start pouring in! What business could you start that would earn you a decent amount without breaking the bank with start-up costs?
Find a Credit Union to Stash Your Cash
For some reason, there are still a ton of people that keep their money in a bank that earns practically 0% in interest. Personally, I moved my money into a credit union so that I can start earning more. In fact, my bank pays back 3% on my savings up to $15,000. By keeping the maximum amount in my account, I earn $450 a year for doing absolutely nothing! Park your down-payment cash in a credit union and you could earn more money by just letting it sit there.
Are you ready to save for your first home purchase? What are you doing to save up the money?
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” In fact, my bank pays back 3% on my savings up to $15,000″. Why not mentioning it? Please let us know where.
I guess I’m a little gun-shy about telling people EXACTLY where I keep my $15,000. The best thing to do is search for credit unions in your area. It may not pay 3%, but many pay 2% or more, which is way better than the typical bank!
Thanks for sharing these awesome tips on saving for a first home!
You’re welcome femmfiscal! I’m glad you enjoyed it!