Are you saving up for a down payment on your dream home? This financial investment comes with exciting rewards, like a place where you can have a fresh start, curate your environment, and enjoy the luxuries of owning your own space—and with careful planning and budgeting, it’s easy to make your initial and monthly payments more affordable. We’ve compiled some of our favorite and most effective ways to save money and afford the home you deserve!
Obtaining a Down Payment
1. Borrow From Your 401K
Taking a loan from your 401K is one option to consider when saving for a down payment on a home. This type of loan allows you to borrow money from your retirement savings and pay it back with interest. There are limits to the amount you can borrow, which is typically 50% of your vested account balance or $50,000, whichever is less.
2. FHA Loan
An FHA loan is a type of mortgage loan that is insured by the Federal Housing Administration (FHA), which is a government agency. One of the benefits of an FHA loan is that it allows borrowers to make a down payment as low as 3.5% of the purchase price of the home. To qualify for an FHA loan, borrowers must meet certain requirements, such as having a steady income and a good credit score. Borrows must also pay a mortgage insurance premium (MIP) as part of the loan, which can add to the overall cost of the loan.
3. 80-15-5 Loan
An 80-15-5 loan is a type of mortgage financing that allows borrowers to purchase a home with a smaller down payment while avoiding mortgage insurance. With this type of loan, the borrower takes out a first mortgage for 80% of the purchase price of the home and a second mortgage, or a piggyback loan, for 15%. The remaining 5% is the down payment that the borrower must provide out of pocket.
Saving for a down payment on a home can be difficult, and one way to help achieve this goal is to receive a monetary gift from friends or family. Many conventional and government-backed mortgages allow borrowers to use gift funds as a portion or even all of the down payment and closing costs for a home purchase.
5. Down Payment Assistance Programs
Down payment assistance programs are typically offered by state and local governments, non-profit organizations, and other groups, and generally target specific demographics, such as first-time home buyers, veterans, or low and moderate income individuals. The type of assistance offered through these programs can vary, but they often provide funds to be used towards a down payment, closing costs, or other expenses associated with the homebuying purchase. Some programs may also offer low-interest mortgages or deferred-payment loans that can be used toward the down payment.
Save Money for Your Monthly Payments
1. Cancel Cable and Switch to Streaming
Cable packages can be expensive, and switching to a couple of streaming services like Hulu and Amazon Prime can save you a significant amount of money each month. Streaming services are generally cheaper than cable packages, especially if you only want to pay for the channels and shows you love to watch.
2. Be a Strategic Grocery Shopper
One of the easiest ways to save money is to be mindful of your grocery shopping habits. Before you go shopping, make a list of the items you need, and stick to it. This will help you stay focused and avoid impulse purchases. You can also plan your meals for the week and buy the ingredients you need in advance. This helps you save money by avoiding last-minute takeout or delivery fees. Also, keep your eye on deals and less popular brands that offer cheaper alternatives to your most-used items.
3. Set a Budget and Record Your Expenses
Keep receipts for all your purchases and record them in a spreadsheet or budgeting app. Determine how much money you have available to spend each month and set a budget for each category of expenses, like housing, transportation, and entertainment. This can help you see exactly where your money is going and identify areas where you may be able to cut back in order to save more money.
4. Search for Free Activities or Events
Many cities and towns have event calendars that list free activities and events. Oftentimes, museums and art galleries also offer free admission, and public libraries may offer free admission to zoos or other local attractions. You can also check out Eventbrite, Meetup, and local news websites.
5. Look For Ways to Earn Extra Income
If you are looking for extra income streams, consider taking on a part-time job or freelance work, or starting a side hustle. This could include offering services like writing, graphic design, photography, or web development. Additionally, you can rent out a spare room on platforms like Airbnb, offer pet-sitting or dog-walking services in your area, or sell items online. By looking for opportunities to earn extra income and using your skills and resources, you can find ways to supplement your income and achieve your financial goals.
By following these tips with dedication and discipline, you can save the money you need to buy a home. Start making your dreams a reality at Olson Homes and check out our thriving neighborhoods throughout Los Angeles and Orange County.