Smart Ways to Save for a Down Payment on Your First Home

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If you have never purchased a home, get ready for a series of small shocks. Two of the main ones pertain to the down payment and closing costs. While everyone's situation is different, first-time buyers are typically surprised that down payments are so high. Unless you are able to qualify for FHA financing, expect to plunk down approximately 10 to 20 percent of the sales price of the home as an initial payment. On a typical $250,000 property, you're looking at having to come up with between $25,000 and $50,000, a serious chunk of change for any young couple or single person.

The other surprise is closing costs, which normally average about one-half of the down payment or less. Say, for example, you are a first-time buyer with decent credit and without FHA financing. If you buy a small home in an average U.S. city, you might be lucky to locate a property priced at $200,000. That means coming up with $20,000 to $40,000 for the down payment and another $10,000 for closing costs. In all, your wallet takes a hit of something in the neighborhood of $30,000 to $50,000, and that's just to walk into the door of your new, humble home. There are ways to avoid the pain, one of which is saving for a few years until you have enough cash to cover that initial monetary shock wave. Here are some effective methods for socking away a large chunk of change for that inevitable day.

Re-Work the Monthly Budget

Spend a few hours re-setting your monthly budget with an eye toward reducing expenses. Look at categories like eating out, vacations, clothing purchases, and anything spent at convenience stores. Most people are able to reduce their discretionary spending by about 10 percent with just a small amount of effort and tracking.

Refinance Your Car

If you want to slice your monthly expenses down to size, consider refinancing your car. Online refi is fast, as you can submit an application in less than 20 seconds, suffer zero impact on your credit, and are under no obligation. After the initial steps, you'll be able to pick your best offer, the one that saves you the most money. The best part is that your savings begin immediately, today. You have the option to accept cash or lower rates, whatever fits your financial strategy. The entire process is transparent, quick, and convenient. In order to find out exactly how much you can save, check out an online refinance arrangement today.

Sign Up for Automatic Payroll Deductions

Making your savings automatic is a wise move. If you have a payroll savings plan where you work, use it. If not, speak with your bank and arrange to have your direct-deposit paychecks reduced by a set amount, which will go into a special home purchase account. You can even arrange to make that designated account locked if you want. Be careful to set the payroll deduction at an amount you can live with.

Put Major Vacations on Hold

For many young couples, big vacations eat up a lot of their savings power. Consider putting off those major, exotic trips until after you buy your first home. You'll be able to move in sooner, and the trip will be all the more enjoyable when you know that a major financial hurdle is behind you. Don't avoid taking small trips, weekend excursions, and short road journeys that don't break the bank. Having leisure time is an important part of living life and keeping your mind clear. The point is to avoid costly travel overseas and once in a lifetime trek. Focus on the goal of building up your funds for a home purchase, and it will be easier to defer the gratification for a while at least.