Putting money aside for down payment of a house may appear a daunting task. Depending on the lender and loan type, your down payment could range from 10% to 20% of the home's purchase price, with some loans requiring as little as 3% down payment, subject to qualification. Whatever your situation or motivation, there are steps you can take to position yourself financially to buy a home you want by raising enough down payment. This article explains the five effective ways of saving money for down payment and statistics about earnest money deposits in 2021.
Earnest money is good faith deposit money put down before closing on a house to show you are serious about purchasing the home. Earnest money is meant to protect the seller if the buyer backs out of the deal and helps in avoiding the sellers' burden of re-listing the house. Earnest money is always 1% to 3% of the total home purchase amount and is withheld in an escrow account for the period until the deal is complete. The amount of earnest money you should look for depends on the market. When the market is so competitive, then you need to raise more earnest money.
In regard to down payment, the following are five ways to save for it:
1. Keep your savings in a dedicated account
A dedicated account allows you to separate house savings from other savings for doing different activities like buying a car. You have to label those accounts specifically. For instance, if you are saving for a house, you will name the account "car savings." For the house, you can call it "house savings. This means you will not use a house fee for buying a car, so it makes house down payment savings safe. Savings accounts are designed so that you, as the owner, cannot withdraw money until the account reaches a specific limit and the term expires. This creates a dedicated saving account best for reaching your down payment goal faster.
2. Set up an automated savings plan
Saving on a regular account has proven to be a problematic activity. Therefore, it is wise to open automated savings account so that you can reach your goal sooner. Automated savings will allow the autonomous transfer of money from your main account to your savings account periodically and locks the saved money for a predetermined period. Therefore, you will not spend blindly. It is then the best strategy for the down payment.
3. Take up a side hustle
Most successful homeowners have not relied on their jobs only as a source of their savings, but rather, they have gone further to look for extra hustles to help them reach their goal faster. Like them, you can use the now available jobs, not necessarily for the long term but in the short time as long as you save for a down payment. In addition, you can make use of currently available remote jobs.
4. Trim your budget
The best means to trim your budget is to look for ways to reduce the utility bills that are not necessarily important. For example, you can choose to use public transport over your private car to commute to work. That eventually will save you a great deal of amount and make you raise more money for a down payment.
5. Look into down payment assistance
There are many available saving programs online that will offer you grants or allow you to access a low-interest loan.
Saving for a down payment may be viewed as a challenging exercise, but planning and mastering different saving plans will make the activity a walk in the park. So, master the skills, save easy and buy a home.