When you think about your future, is owning a home a part of your plans? If an abode to call your own is on your vision board, you may feel unsure of how you’ll come up with the cash to manifest your goal. But with smart savings strategies, you can make a step-by-step plan to stash away the funds needed to purchase a home. Follow these tips to save for your dream.
1. Know how much money you need at closing
You’ve probably heard a 20% down payment is a requirement to buy a house — but that’s not necessarily true.
While 20% is generally the amount to aim for, you may qualify for certain loans that allow smaller down payments. Researching different types of mortgages and lenders will give you a better idea of what you should plan to put down.
If you do make a down payment that’s less than 20%, you may be required to purchase private mortgage insurance, which will add to your monthly mortgage payment. But if you’re able to pay at least 20% at closing, you could lower how much interest you pay over time.
Keep in mind closing costs typically include additional fees that run between 2 and 5% of your purchase price — so make sure those expenses are factored into your savings goal.
2. Create a budget you can stick to
Buying a home is a big financial investment. To be sure you’re prepared for the cost of home ownership, you need a solid saving strategy. Budget templates can help, but they’re not for everyone. One method to easily and strategically manage your money is by utilizing Ally Bank’s buckets and boosters. These convenient tools take a more visual approach to budgeting.
An Ally Bank Spending Account offers spending buckets. You can create different spending buckets for various expenses; choose what each bucket is for and how much of your money you want to allocate to different categories, such as groceries or rent. You can have your funds distributed automatically or move them manually. Spending buckets can help you organize your different expenses to free up more money in your budget to put toward buying a house.
Once you optimize your spending, it’s time to supercharge your savings. Savings buckets, a feature of Ally Bank’s Savings Account, allow you to easily set up buckets for multiple savings goals, like a down payment on a home. You designate what each bucket is for and what percentage of your paycheck or other income you want to allocate to different categories (up to 30 buckets). You can manually transfer funds to your savings buckets with the distribute tool, or set up automatic contributions. Watching your down payment bucket grow can keep you motivated as you get closer to your goal. Keeping the money separate may help keep you from dipping into it for another purpose.
In contrast to spreadsheets or using multiple accounts, buckets are a simple solution to help take the guesswork out of creating a plan to manage your money. You can use spending and savings buckets together to help make your dream of homeownership a reality.
3. Cut expenses
Trimming your spending is one way to rack up extra savings. Carefully weigh what you can and can’t live without in your journey to becoming a homeowner. Spending buckets make this process easy by quickly giving you insight to areas where you may be overspending and can also help you prioritize your spending. For instance, maybe you can put a streaming service or two on hold in order to redirect more money to the down payment bucket in your savings account. Short-term sacrifices of certain luxuries may be worth the long-term gain of owning a home.
4. Find extra income
Beyond cutting back on spending, you could increase your earnings to help save up for a home. Is now the time to go for that promotion or ask for a raise? You could take on more hours at your current job or consider a side hustle. If you’re the crafty type, look into monetizing your hobby by selling your creations online. Pick up some hours driving for a ride share service, or look for work-from-home opportunities like virtual assistant or transcription gigs.
5. Save money through a down payment assistance program
If you’re a first-time homebuyer, you may be eligible for down payment assistance. Funded by the government, private foundations and charities, these homebuying programs provide cash grants, low-interest loans and tax incentives to eligible buyers. Qualification depends on where you live and how much you earn. Check out the U.S. Department of Housing and Urban Development (HUD) to learn more about programs and eligibility.
6. Maximize your savings
In addition to buckets, boosters are another feature of an Ally Bank Savings Account that could help optimize your savings. Boosters accelerate your ability to save by doing some of the work for you. Recurring Transfers allow you to have your money automatically transferred into different buckets that work for you.
If you link your savings and interest checking accounts, Surprise Savings can analyze your spending to find areas where you could be saving more and automatically transfer that money to your savings account. Lastly, Round Ups will round up your spending to the nearest dollar and automatically transfer the balance to your savings account once you’ve accrued at least $5. You’ll be surprised by how quickly it can add up!
7. Don’t forget flexibility
Remember that the true cost of home ownership includes a lot more than your monthly mortgage payment. Be sure to account for these additional expenses, including property tax and homeowner’s insurance. Our home affordability calculator can help estimate how much house you can afford. It’s also good to remind yourself that buying a home is an adventure, and you might encounter a few bumps along the way. Build some cushion into your budget for unexpected or extra costs that may pop up like appliances, furniture, repairs or renovations.
Save strategically for home sweet home
Buying a home is exciting and likely one of the largest purchases you’ll ever make. With a smart approach to saving, you can be one step closer to achieving your dream of homeownership.