Don’t let the lack of a down payment stop you from buying a house. Today it’s easier than ever to save and you don’t even need 20% down. We have loan programs that allow down payments as low as 3% of the loan amount.
So how do you save even when it feels impossible? Check out our tips below.
How Much Should you Save for a Down Payment?
Before you start saving for a down payment, you should know how much to save. There isn’t a one-size-fits-all answer.
Of course, the more money you put down, the more likely you are to get loan approval, but as I said above, 20% isn’t mandatory.
At the very least, save 3% for conventional loans or 3.5% for FHA loans, but the more you put down, the less you borrow and the less the home costs overall.
🏡 Steps to Take Before you Save for a Down Payment
Before you save for a down payment on a home in Louisiana, take these steps:
- Figure out how much you want to save. A ballpark amount is fine.
- Look at your timeframe. Will you buy a house in 6 months, a year, or longer?
- Look at your budget. Do you have room for the amount you must save each month to reach your goal?
If you answer ‘no’ to the above question, keep reading to learn the simple ways to save for a down payment in Louisiana.
Ways to Save for a Down Payment 👇
1⃣ Pay yourself first
It’s natural to pay your bills and do your normal monthly spending before saving. Most people do it this way, but if you switch it around, you’ll find that you save money a lot faster.
Set up automatic savings deposits in the amount you decided you could afford each month. Either set up direct deposit with your employer or set up automatic transfers with your bank. Take the thinking out of it and the money automatically shows up in your savings account, adding up to reach your down payment goal.
2⃣Cut your expenses
When’s the last time you reviewed your budget? Chances are you make monthly payments that you can cut. If you look hard enough, you’ll probably see areas you overspend too, like shopping, coffee shop stops, and salon appointments.
Go over your spending and see which areas you can cut the most. For example, can you cut the cord on cable, shop around for cheaper insurance, or negotiate any other bills?
Any money you save, automatically deposit into your savings account. Every dollar matters, so don’t think any change is too small to matter.
3⃣Bank your windfalls
Speed up the process of saving for a down payment by banking any windfalls. You probably receive more money than you realize and quickly spend it. Instead, put any money you receive that isn’t your income right into your savings account.
For example, a stimulus check (if we get more), tax refund, work bonus, or large commission check are all windfalls. Deposit most, if not all of the check into your savings account and watch your down payment fund grow faster than you thought possible.
If you have money invested elsewhere (besides retirement, more on that below), you may consider selling them. Don’t think of it as ‘giving up’ your investments or even liquidating them, instead, it’s a transfer of money from one asset to another.
Your home is one of the largest investments you’ll make in your lifetime. If home values appreciate, you’ll get a nice return on your investment, maybe even more than you would have made in your other investment vehicle.
5⃣Negotiate Lower Credit Card Rates
If you have consumer debt, try negotiating lower APRs and/or consolidating into a 0% APR credit card. The more money you can save on interest, the faster you’ll get out of debt, leaving more room to save for a down payment on a house in Louisiana.
💰 Using Retirement Funds to Buy a House
If you have a 401K or IRA you may tap into your retirement funds for a down payment. Like I said above, make this your last resort. While it’s nice to use the funds you saved and buy a home faster, you rob your future self of retirement funds.
Unless you know you can pay the funds back quickly, it’s not the first place to get your down payment funds. If you decide borrowing or withdrawing from your retirement funds is right, here are the rules:
- IRA – First-time homebuyers which includes anyone who hasn’t owned a home in the last 3 years, can withdraw up to $10,000 and avoid the 10% penalty. You’ll still owe taxes on the funds you withdraw, though, so keep that in mind.
- 401K – You can ‘borrow’ or withdraw funds. If you borrow from your 401K, you must pay the funds back within 5 years (or on your 401K sponsor’s terms). You’ll pay interest, but it goes into your account. You avoid the 10% early withdrawal penalty. If you withdraw the funds, you don’t have to pay them back but you’ll pay the 10% penalty plus taxes.
❓How Will you Save for a Down Payment?
It’s easier than you think to save for a down payment and with today’s flexible loan programs, you probably don’t need as much as you thought.
Start today saving for your down payment and let’s see how fast we can get you into a loan that helps you buy your dream home in Louisiana quickly!