The typical American Dream includes buying a home with a white picket fence instead of renting a home for life. Now, I’m not saying your dreams should line up with the American Dream. However, if buying a home, with or without the picket fence, is part of your American Dream then you’ll need to be able to save up for a down payment for your first home.
Saving For Your First House Down Payment Won’t Be Easy
Saving up tens of thousands of dollars is no easy task, but if you want to buy a home that’s exactly what you’ll need to do. I personally recommend putting at least 20% down on any home you buy. That means a $100,000 house would require at least $20,000 down and a $200,000 house would require a $40,000 down payment.
Both amounts are daunting to a new saver, but it is very possible to accumulate enough money for your first home’s down payment. I know from experience as I have saved up two 20% down payments, the first for our townhouse we bought on a whim and the second for our long-term home.
Save Extra “Housing” Money
I actually started saving for my first house as soon as I got my first paycheck from my first post-college job. I remembered reading somewhere that I should budget 33% of my income for housing and housing related costs (insurance, taxes, etc). However, I was only spending 20% of my income on rent and renter’s insurance.
So what did I do? Instead of spending the money somewhere else, I took that extra 13% I wasn’t spending on my rent and put it into a targeted savings account called First Down Payment. This method can eventually reward you a proper sized down payment for your first home but it might take a while.
If you’re planning on buying a house in the next few years, your current housing cost must be much lower than the recommended 33% or else it would take decades rather than just years to do accumulate a 20% down payment. There are other methods you can and should supplement this method with.
Put All Extra And Unexpected Income Toward Your Down Payment
Since you’re likely trying to save up for a down payment as fast as you can you might want to take some extraordinary measures you wouldn’t normally consider. You know how sometimes you run into some extra money throughout the year? Bonus checks, gifts, tax refunds or other random sources of income that you don’t normally rely on or live off of all fit this example.
Pretend these extra sources of income don’t exist and never spend a penny of them. Instead, throw every single penny of them into your First Down Payment account. You might be tempted to use your bonus on a sweet vacation for your family, but keep in mind you bigger goal is owning a home!
Increase Your Income And Don’t Spend A Dime Of It
The last easy way to save for your first house down payment isn’t necessarily fun, but it will get the job done. You can only cut your expenses and save unexpected income to a certain point. However, you can increase your income in many ways and the quickest way is to work more.
If you really want to get your first house sooner rather than later, you can put in extra hours at your job if you’re paid hourly. Overtime pays even better than straight pay which should amp up your savings efforts quite nicely. Alternatively, if you can’t get paid for extra hours at your current job, you can get a part time job or create a small business on the side that generates some extra income.
Saving up for a your first house and your first down payment isn’t easy. It can be done in just a couple of years rather than a decade if you put your mind to it and use the easy tricks I mentioned above. They’re all pretty easy to institute but they do require a bit of work and self-restraint. Just remember, it’ll all be worth it when you get the keys to your first home!
How did you save for your first down payment on your first home? I want to hear your stories in the comments below. Of course, if you don’t feel comfortable sharing in public, you can always use my contact form or email me to let me know.
Photo courtesy of Jim Larrison.