If you’re ready to transition from being a tenant to an owner, you’ll most likely need to save for down payment. We’ll share some effective ways to save on a down payment.
When you are out in the market to buy a home, finances play an important role. It’s much easier to hunt for an apartment when you know how much money you can shell out. As for a down payment, it is typically in between 5% and 20% of the purchase price. Saving up 20% of the property price is a huge task, but an achievable one. We’ll share some effective ways to meet this target of 20%.
Here are a few ways you might want to try to save for down payment on the house you wish to buy.
1. Fixed savings amount
With some minimal planning and the magic of time, keeping aside some money into a savings account each month can be an extremely effective way to build on your down payment. According to many market research studies, it’s the most common way to save for a down payment. Almost 70% home buyers reported financing a part of their down payment by saving up over time.
It’s interesting to know how much you can save over the course of five or ten years if you keep aside as low as INR 5000 a month. When you factor in the interest on the savings and the power of compounding, you can possibly fund more than just your down payment.
If you were to invest this savings amount in a low cost Index Fund with an average rate of return of 12% for 10 years, you’ll almost double your money! INR 5000 a month for 10 years at 12% is almost INR 11.5 Lakh.
If you do have a shorter time horizon, you can always increase your savings amount to save for down payment to meet your timeline. However, this method takes time since the market keeps on changing and so does the down payment that you must accumulate. Property prices can rise and consequently, the minimum down payment will also go up.
2. Sell things that you don’t need to save for down payment
No matter what time of the year it is, it’s always a good to dig out some stuff that you don’t need anymore. This can be easily done during your annual Diwali-cleaning routine! Selling off your old furniture, electronics, sports kits or some accessories that you don’t use anymore can help you earn some extra cash.
There are a number of online sites like OLX and Quikr that can help you connect with potential buyers for your unwanted belongings. The best part about this is that you don’t even have to step out of your house!
3. Lower your cost of living
Personal Finance 101! Living below your means is a tried and tested method to save for down payment. Yes, it might be a tough especially when you are used to living in a bigger space. However, downgrading your space and your monthly rental payments might help you big time. You’ll put away more money each month and save for your down payment.
The cost of renting is usually a major chunk of your monthly expense. Moving to lower cost index cities will help you save more on rent. If you are able to cut it down by moving into a smaller apartment, you’ll see the savings add up quicker than you anticipated.
For those of you whose live alone, one way to lower your cost of living is sharing your living space. Having a roommate can directly cut your rent in half. If you have friends or relatives with a spare room, you might be able to cut down on rent for a few months by staying with them. If you choose to stay with your parents, no rent!
4. Reduce your monthly expenses
The concept of “Lifestyle Inflation” is something that we all blissfully choose to ignore. Just because you earn a bigger paycheck than you did last year doesn’t mean you should increase your expenses.
Do you really need all the OTT subscriptions? Can you downgrade your Wi-Fi plan? Do you really need to upgrade your phone every year, that too on an EMI? While it may seem difficult to let these go, cutting back on these expenses can help you to save for down payment. Bringing down your recurring monthly expenses can help you save money faster.
But make sure you’re setting that money aside straight away when you get your salary. If it sits idle in your account, you might be tempted to spend this money.
5. Lifestyle changes
Going out with your boys for some beer after work or going to the movies on the weekend does sound fun. But do you ever imagine how much your bank account will thank you if you cut back on these expenses? Keeping a close watch on your extracurricular activities is an easy way to retain more cash in your pocket.
Instead of going out to the movies, you can simply watch one on Netflix or Amazon Prime. You’ll also save on the astronomical cost on popcorn! If you’re someone who likes going out for the social aspects, invite your friends over for a fun session.
One hack to spend less during the month is to try a no-expense weekend. Try not to spend at all on any one weekend out of the month. Mark my words, you’ll be surprised by how much you can actually save by curbing your expenses for just a weekend.
6. Add an income source
With the hustle culture in prominence, everyone is talking about adding additional sources of income to move towards financial independence. If you’re willing to put in a few hours on the weekends or even after your regular day job, you can potentially earn some extra cash.
Having a side hustle like content writing, video editing, website development and other online gigs are a great choice since they provide you the comfort of doing it from anywhere. You could also try selling some handmade items online or to colleagues and friends. You can always go for traditional gigs like home caretaker, babysitting, running errands and what not.
7. Down Payment Assistance Program
You don’t have to entirely bear the burden of saving for a down payment. Certain financial institutions offer down payment assistance to home buyers who qualify for their program. These programs are often funded by non-profits or governments agencies, in the form of either a grant or a loan.
You can contact your real estate agent to ask for recommendations on down payment assistance programs. As for those who wish to buy a house through Address India’s exhaustive network, our home loan consulting services will cater to these needs.