For most people, a big part of the American dream is still homeownership. But many people are kept from realizing that dream because of the necessary down payment. It’s a big chunk of money, and saving for a down payment is harder than ever. And that’s especially true for Millennials, who face challenges that their parent and grandparents didn’t, not least of which is their typical large student-loan debt. There are, however, some ways for first-time buyers to meet and overcome the challenges. Read on, then, to discover 5 solutions for potential Chicago homebuyers who are struggling to save a down payment.
1. Have a Plan
Any large and difficult undertaking requires a plan, and that goes especially if you want to save a down payment for a Chicago home. The best way to set up a down payment savings plan is to know how much you need to save – that is, how much the down payment will be – so that you’ll have a clear-cut goal to work toward.
That doesn’t mean, however, you’ll have to save for the traditional 20% down payment. Doing so will help you avoid having to pay for private mortgage insurance, but it’s just not possible for many Chicago home buyers today. If you take advantage of assistance programs, you can plan to save a smaller down payment. But do have a figure in mind so that you have a goal to shoot for.
The next part of your plan to save a down payment involves the time frame. How long will it take you to save the required amount? Just be realistic here, and don’t set an impossibly short time frame.
You should also consider when putting together your saving plan, where you will put the money you save. Whatever savings instrument you use, keep in mind that this isn’t an investment. You’ll draw the money out as soon as you hit your goal. But, then, if it’s too easily accessible, you may be tempted to spend some of it.
2. Freeze Spending and Cut Out the Extras
This next of our solutions for potential Chicago homebuyers who are struggling to save a down payment may require a little sacrifice and will definitely take some discipline. But it will be worth it.
The first thing to do is implement a spending freeze so that you’ll have much more money coming in than going out, thus allowing you to increase your savings rate. Certainly, you shouldn’t make any large purchases such as a newer car, but not spending on the small things can save a lot over time.
Besides the spending freeze, you should also cut current recurring expenses, for example:
- Cancel the gym membership you use only once or twice a month
- Cut out the $6.00 cup of coffee every morning
- Eat out only on special occasions
- Cancel the cable
- Buy generic brands when shopping
3. Use Automatic Saving
An easy way to save a down payment is by putting money into savings before you ever see it or touch it. “Whether your employer offers an automatic savings plan or you download an app to save your spare change, the more automatic you make saving, the more successful you will be. Left to your own devices to transfer money out of your checking account and into a savings vehicle, it may never happen. That dinner with friends or a new pair of shoes can easily get in the way.”
Look into setting up an automatic withdrawal from your paycheck to be automatically deposited into a savings account. Another thing you can do is to use one of the many apps that round up your purchases and deposit those few cents into a savings account – it adds up.
4. Pause Retirement Savings
You might also consider, as a temporary measure to help you save a down payment, pausing your retirement savings. Certainly, this isn’t a long-term strategy, but done for a short time, it can help you hit your down payment savings goal much sooner.
For example, if you normally put $500 of your monthly paycheck into a401(k)s, back off on that for, say, two years. At the end of those two years, you will have saved $12,000 – not counting the other contributions to your down payment savings. Then, after you hit your goal, start saving for retirement again.
5. Take Advantage of Assistance Programs
Now, as we mentioned earlier, you don’t necessarily have to save a down payment of 20% of the purchase price. There are several state and federal down payment assistance programs that will allow you to buy a Chicago home with a much lower down payment. Here’s why . . .
“The government wants people to own homes. To spur homeownership, local and federal agencies offer down payment assistance programs. To be eligible for these programs, buyers need to meet certain requirements that can be based on the income of the borrower, the location of the property, or the buyer’s identity as part of a particular group.” There are, for example, such programs for “veterans, first-time buyers, teachers, and firefighters.”
Find Out More About How to Save a Down Payment
These solutions for potential Chicago homebuyers who are struggling to save a down payment will indeed work. Still, they may not work for you considering your unique circumstances. But there’s always more than one way to skin a cat. To discover more strategies to save a down payment, as well as ways to get a lower down payment, contact us today at (630) 984-0000.