Top Four Ways to Save for Your Mortgage Down Payment

These simple methods can get the ball rolling on your down payment savings

3/12/2020 3:18:30 PM
Best Ways to Save for Your Mortgage Down Payment

Buying a home is one of the biggest investments you’ll make in your lifetime, and often the process starts with a big hurdle: the down payment. But if you start early and plan ahead, with a realistic eye on your needs and options, you’re off to a great start. Here are four of the best ways to save for a down payment as you work your way toward home ownership.

Step 1: Make a budget

Create a spreadsheet that lists all of your monthly expenses and monthly net income. Not only will this tell you how much you can put into savings, it can also help you get a clearer picture of how much of a monthly mortgage payment you can afford. If the buffer between expenses and income is already too small, this is an early red flag that you’ll have to make changes. “When I’m working with new buyers I love to meet six months to a year before they want to buy to talk about budget and funds needed,” says North Shore Bank Mortgage Loan Originator Susan Liedel (NMLS #553740). “One tactic I suggest to get a handle on spending is to use only a debit card for one month. You can see quickly where your money is going and from there set a budget eliminating excess spending and depositing that excess into a savings account.”

Step 2: Do the research

As with just about any savings endeavor, it’s helpful to have a goal. Going through the budgeting process in step one should start to give you an idea of what you might need for a down payment. In addition, there are many available government programs that offer lower down payments, down payment loans or grants, or housing discounts. Connecting with one of our mortgage lending experts can help you determine if you qualify for any of these programs and also help you realistically determine what you need to save for a down payment.

Step 3: Automate your savings

Open a separate savings account specifically designated for your down payment/mortgage, and set up automatic transfers into that account on a regular schedule. Better yet, modify your direct deposit so a designated amount from each paycheck goes directly toward your down payment savings. You might consider maintaining this account separately from accounts you use regularly so funds are not immediately accessible to “borrow” from when daily needs and wants inevitably pop up.

Step 4: Consider longer-term investments

“Clients I’ve worked with have found long-term investments to be a great option if they’re looking ahead several years to purchase a home,” says Liedel. “Typically the closer you are to buying the more ‘liquid’ you want your savings to be.” In general, if you think you’ll buy a house in five to seven years bonds can be a good option; if you have a smaller window of time, such as two to four years, higher-interest CDs might be worth exploring.

Whether you choose one of these savings methods or all of them, securing funds for a down payment is the first financially-sound choice you can make on the road to home ownership. Contact a North Shore Bank Mortgage Loan Professional near you who has the experience to guide you through your options and keep you on track as you get started.  

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