Creative Ways to Save for a Down Payment on an Investment Property

Everyone dreams of owning a home as their first investmetn; that hasn’t changed over the years. Though its status as a good investing choice is debatable, it’s still one of the biggest financial goals in people’s lives. However, with the current state of things, most Millennials and Gen Zs are probably throwing their hands up now and asking the generation-old (rhetorical) question:

“Buy a house—in this economy?” 

And I can’t blame them. Houses haven’t been affordable for quite some time now.

But that doesn’t mean they’re impossible to purchase. Those with the means and the will to buy one have several options, though they need to get through one of the biggest hurdles to home ownership: the down payment. 

There are creative and effective ways to save for that crucial down payment and turn your dream of homeownership into reality.

So, let’s talk about them.

How is the Down Payment for a Home Loan Calculated?

Before discussing creative ways to save for a down payment on an investment home purchase, we need to define a down payment and how much it usually goes for. 

A down payment is an amount a borrower must pay upfront to buy a home. It is usually calculated as a percentage of the total mortgage amount. 

For instance, if a house costs $250,000 and the lender requires a 20% down payment, you must shell out $50,000. The remaining amount is then financed through a mortgage, which you repay monthly. 

Here’s a quick rundown of the typical down payment requirements for different types of financing options: 

Can Downpayments Be Financed?

Good news! Down payments are, for the most part, available for financing. If you’re approved for a conventional loan, you have a high chance of getting approved for down payment assistance. Always research your options, as you might miss out on significant mortgage help. 

Benefits of Paying a Larger Down Payment

Paying a larger down payment can have several benefits, like:

• Drastically Reduces the Interest Rate: A larger down payment lowers the loan amount, reducing the lender’s risk and potentially qualifying you for a lower interest rate. For example, on a $250,000 loan at a 5% interest rate, a 25% down payment could save you thousands in interest over the life of the loan.
• Reduces Monthly Payments: A larger down payment means borrowing less, which translates to lower monthly mortgage payments.
• Reduces Private Mortgage Insurance (PMI): Borrowers who make a down payment of less than 20% typically need to pay PMI. A larger down payment can eliminate this additional cost, saving you even more money.

Creative Ways to Save for a Down Payment

Saving for a down payment doesn’t have to be daunting. Here are some creative ways to build your fund:

Set Up a Dedicated Savings Account

Create a separate savings account specifically for your down payment. Make it so that this savings account is a “deposit and forget it” type. To make it even better, automate transfers from your primary account to ensure consistent savings. 

Cut Unnecessary Expenses

We’ve all got that subscription or monthly expense that we don’t need but can’t seem to remove from our monthly budget. If that’s the case, you need to decide and cut it out so you can buy a house. Review your monthly expenses, identify areas where you can cut back, and redirect these savings to your down payment fund.

Reducing fixed expenses is also a great way to bolster your financial health. So, cut corners wherever applicable and appropriate—and make it a habit. 

Always Look For The “Save More” Option

If you spend a few minutes researching, you’ll be surprised at how much money you can save on practically anything. 

For example, did you know some companies will send you free samples of stuff you use at home?

And if you happen to go away for the weekend when booking hotel rooms for international travel (either for work or leisure), you might want to look into the best room rates and the cheapest days, then work your way from there. 

You can also up your game and pre-buy other things like discount travel passes and tickets, prepaid cards, or other necessary items for day-to-day cell phone and internet access. Trust me, they’re significantly cheaper this way, as opposed to when you need to buy them at the moment of need. 

Coupons and shopping for necessities during discount periods work well, too. You just need to put in the work to find out when those are. 

Take on a Side Gig

Unless you’re easily making six figures, one job is not enough to fund your home fast. So, it’s best to increase your stable income by getting into side hustles, like part-time jobs or freelance work. 

Are you good at writing? Write articles for money. Crochet enthusiast? Take orders or sell your work in online marketplaces. Regardless of what it is, take your interests and make some money off of it. 

The extra income can significantly boost your savings, making it one of the best creative ways to save for your home down payment. 

Save Windfalls and Bonuses

It’s good to spend money on yourself occasionally. But remember, you need to be consistent, fastidious, and creative when saving for your house’s down payment. That means any and all income sources are up for grabs—so that you can buy your dream house faster.

So, shove those tax refunds, work bonuses, and incentives into your down payment savings account. 

Sell Unwanted Items

Take inventory of your stuff and list what you no longer need. Then, go to your favorite online marketplace and sell them. You’d be surprised at how much money you can get from the junk littering your basement and closet. 

Use Financial Assistance Programs

Explore down payment assistance programs offered by state or local governments, non-profits, and private institutions. These programs can provide grants or low-interest loans to help with your down payment. Just make sure you meet their qualifications and requirements, and you’ll be set. 

Tap Into Retirement Funds

If you’re a first-time homebuyer, you can withdraw up to $10,000 from your IRA without penalty. Additionally, you can borrow from your 401(k), though it’s essential to understand the terms and potential impact on your retirement savings.

Final Thoughts On Creative Ways To Save For A Down Payment

There are many creative ways to save for a down payment. However, all of them require planning and discipline. Explore various savings methods and financial assistance programs while keeping your spending aligned with your goals, and you can make your dream of investing in real estate a reality.

But you don’t have to do it alone. Remember to consult with a financial advisor or down payment assistance provider to ensure you make the best choices.

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