A mortgage loan traditionally requires the buyer to make a down payment of 10 to 25 percent of the purchase price of the property. Finding a mortgage that does not require you to make a down payment is almost impossible, especially after the financial crisis of 2007 – 2009. Since the 2007-09 financial crunch, the conventional lenders have further tightened their lending policies, and the down payment requirements have become more strict. In general, the mortgage lenders ask the borrowers to pay 10 to 25% of purchase price as down payment, but there are exceptions for first-time home buyers, and the lenders usually decrease down payments to around 3% of the purchase price for them. The lenders also have separate policies for credit-challenged borrowers, for whom down payment is increased to 30 to 35 percent.
Whether you are a first time home buyer, or a credit challenged borrower, you have to save some money to make the mortgage down payment. Many clients find it quite difficult to save in a tight budget. Here are a few guidelines that will not only help you find easy ways to save for mortgage down payments, but will also tell you how to utilize those savings to earn more money.
Say no to debit and credit cards
The first step towards saving money is to start paying with cash and save all of the change. People who use debit cards and credit cards to pay for everything from a cup of coffee to weekly grocery do not save a lot of change. Since they are not paying with cash, they do not end up with coins, which they could save for the mortgage down payment. Whenever you are trying to set some coins aside for a down payment, save them in a money box that is not easily accessible. Also resist your desire to pay your monthly utility bills from the money you have saved for the mortgage down payment. You will be surprised to see how fast the container will fill up.
Save the money that would have been spent on eating out
When looking for easy ways to save for a down payment, avoid unnecessary expenditures, such as weekly shopping, lunch out etc. This does not mean that you should stop eating out all together however, go dine out once a week instead of twice or thrice and save money for the mortgage down payment.
Use your savings to earn money
If you are saving money for down payment, do not let it remain idle in the saving account, earning you an interest rate of less than 1 percent. Instead, make sure it is working out for you. If you are planning to purchase your new home in the next few years, save the down payment funds in a high-yield saving or money market account. You can also consider putting the money into a Certificate of Deposit (CD). These accounts offer less flexibility and liquidity to the clients, but the yields are lucrative.