If you’re looking to buy a home in Washington state, you’ll likely need to take out a mortgage. And to secure a home loan, you’ll need a down payment. Depending on the type of mortgage you apply for, that down payment amount can vary. That said, this down payment is still a large financial investment, and one that may be difficult to come up with if you have no plan for savings.
In order to save up a large amount of money for the down payment on your first mortgage, you need a plan to save as much as you can.
When you take out a mortgage on your new home as a first time home buyer in WA, the more you can pay as a down payment the better. The down payment on a mortgage reduces the principle of the loan and means that you will be paying tens of thousands less in interest payments over the life of the loan.
Most financial experts recommend that you should save up at least 20% of the value of the home as a down payment. Depending on the value of the home that you want to buy, this can be a serious chunk of money.
The conventional saving tricks of skipping your morning latte and eating dinner at home just aren’t going to cut it when saving up this much money! You will need some strategies for saving big.
Here are 6 tips to help you get closer to that down payment:
- Make a Separate Savings
- Automate Your Saving
- Pay Off Your Credit Cards First
- Get a Part Time Job
- Make a Backwards Budget
- Borrow From Your 401k
#1. Make A Separate Savings Account in WA
No matter how much you have already saved for your down payment in WA, create a new savings account to put the money in. When the money is in your personal account it is so much more tempting to spend it on day to day expenses. Also, a savings account will give you a better rate of interest so that you can help you money grow.
#2. Automate Your Savings
To make saving up for a down payment easier, consider automating your savings. Rather than manually taking a certain amount of money out of your checking account and depositing it into a savings account, have that transfer made automatically every month without you having to remember to do anything at all.
You may want to ask payroll if it’s possible to have a certain percentage or amount of your paycheck deposited into a separate savings account. Otherwise, ask your bank to have this done for you.
#3. Pay Off Your Credit Cards First
If you have credit card debt, you will be paying interest charges to the credit card company every month. These charges can really add up, especially if you are only paying the minimum on your loans.
If you’re trying to save up for a down payment, you’ll need to reduce the amount of money you’re paying towards other things, including your high-interest debt, and your credit cards certainly fit into this category.
High-interest rates on credit cards can significantly hinder your ability to save up for a down payment. As such, you’ll want to try to tackle your rate credit card debt first, as the interest rate on these accounts are typically among the highest compared to other loan types. Start with your highest-rate debt first to pay down, then consistently chip away at the nest highest-rate dent account, and so forth until you’ve managed to bring your debt level down to a manageable level.
If you can pay down this debt you will have extra money every month to put into your savings instead.
#4. Get A Part-Time Job
If you want to accelerate yourself towards having your down payment saved up, you could consider taking on a part-time job in Washington in addition to your full-time job on a few evenings and weekends.
It doesn’t have to be something that you do forever, but even sticking with it for six months to a year will give you thousands in extra income that you can put straight towards your down payment.
#5. Make A Backwards Budget
Do you find that after you have paid all of your bills and your living expenses, there is nothing left over to save? Rather than calculating all of the money that you use on your monthly expenses and then saving whatever is left afterwards, why not make your budget the other way around?
#6. Borrow From Your 401K
You may be putting money aside in your 401K to have as a nest egg when you retire, but you can also use those accumulated funds to be used as part of your down payment. While some people may be a bit wary of taking money from their 401K, keep in mind that putting it towards a real estate purchase should be considered an investment. Many company-sponsored 401K or profit-sharing plans let employees borrow against these savings to buy a house.
Real estate appreciates in value over time, despite any odd blips on the radar from time to time. As long as you take care of your property and are diligent with your mortgage payments, your equity can grow and your property value can increase.
Start off with how much you want to be able to save per month then subtract that amount from your net income. The number you have left is what you have to live off.
You will find that you naturally change your habits to make this amount of money work for you and if it if not enough you can increase your income by getting a side gig. These are just a few ways that you can save up for a down payment on your first home in order to save money over the years on your mortgage.
Need a Mortgage?
Are you ready to apply for a mortgage and buy a home? Then you need to speak with the experts in mortgages: Sammamish Mortgage. We are a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have any questions or are ready to apply for a home loan.