Home ownership has always been the great American dream. But, and here’s the big but, the down payment required to buy a home has gotten bigger and bigger as home prices have increased over the years. For example, homes in New Jersey have an average listing price of $344,023. The homes in Wyoming have an average listing price of $278,923. So, If you want to buy a home in New Jersey, and need to put 20% down, you’d need $68,804. A 20% down payment on a home in Wyoming means $55,784.
Why put 20% down?
It’s possible to buy a home without a 20% down payment. However, putting 20% down is best for two reasons. First, it makes you much more attractive to a potential lender. And second it makes you a more reliable buyer – as it reduces the possibility the purchase will fall through.
Regardless of how you slice it, putting $64,000 down or even $40,362 requires a lot of effort but you could do it and even in just one year.
How to raise the money in one year
If you’re in a big hurry to buy a home and your goal is a 20% down payment, this is going to be extremely challenging. For the sake of the example, let’s say you want to come up with $50,000 for a down payment in just 12 months.
To hit this goal, you will need to set aside $4167 a month, which means taking some extreme measures, and looking at every dollar you can cut from your current spending.
You might actually have to move in with a family member or friend to slash your rent. You might offer to do things around the house or help out in other ways, which could cut your rent even further, or you might be able to live rent free.
You may have to sell some of your assets that are useful but unnecessary, like your car. You would need to assess all your possessions to determine which ones you could sell; from that collection of baseball cards to your used textbooks. You will also need to find ways to sell your stuff, like online, yard sales, consignment sales, or eBay.
Slash all your expenses that are nonessential, regardless of how inexpensive they are. This includes everything from services like Netflix and Spotify to those drive-through latte’s you’ve been buying every morning.
Find cheaper options for your essential services. This could mean reducing your insurance coverage, which would cut your monthly premiums. Other areas where you could cut costs include grocery shopping, your cell phone plan, and your cable bill. You should have a new rule, “If I don’t absolutely need to buy it, I won’t.”
You may have to find ways to earn more money to meet your goal. This could mean taking on additional work or getting a second job. You might be unable to keep this up for years, but remember that you’ll only have to do it for 12 months.
The good news here is that you’ll only need to save $1389 per month to raise that $50,000 down payment. This means your approach won’t have to be as severe but the steps are about the same. You will need to find ways to cut unnecessary costs and ways to increase your income, so that you’ll be able to save more cash.
What you would need to do
1. Cut your cable and switch to a streaming service. The average cable bill today is about $100 per month. In comparison, you should be able to get streaming services for less than $10 a month. That would yield a net monthly savings of $90!
2. Eat out a lot? Cut down on the number of meals you eat out each week. If eating out at lunch costs you an average of $10, you could pack one for $4, which would be a monthly savings of $180.
3. Just one date night per month to the movies can put a serious dent in your savings efforts. Two tickets, a large popcorn, and two sodas can easily cost $35. Replace this by streaming a movie at home with some microwave popcorn, at a total cost of maybe $5.
4. Do you have a pricey gym membership? Ditch it for free at home workouts. YouTube. com has videos you could use, or you could download some instructions. This could result in saving as much as $60 per month.
5. Did you know bills can be negotiated? Call all those companies that provide your services, including your cell phone companies and insurance companies, and ask about options that would cut your costs. It’s more than possible you could switch to a more basic service, find some discounts, or maybe even eliminate the service altogether.
6. Whenever you earn some extra income or get a bonus, put it straight into your savings fund. That will allow you to reach your $50,000 saving goal quicker, or you may not have to cut back as severely on your spending.
Finally, first-time home buyers often make mistakes. This video reveals the most common ones and how to avoid them.