Cut unnecessary spending. Another way to boost your down payment savings is to cut back on expenses you don’t need. After you’ve reached your down payment goal, you can add those things back into your budget. Here are some ideas on how to cut spending: Eat out less and buy generic-brand groceries. Replace vacations with staycations. Avoid buying new products and shop for used ones. Cancel some of your streaming services and stick with one or two (or even use some free ones). Trade your gym membership for free at-home workouts on YouTube. Save bonuses and raises. Do you have opportunities for bonuses at your job? Maybe you’re in a role where you can increase your commissions the harder you work. Or you might be due for a raise. Whatever your job situation, another great way to save for a house while renting is to dedicate any extra money you earn at work toward your down payment goal. Avoid the temptation to fall into the trap of lifestyle creep whenever your income increases—instead of using the money to increase your standard of living, throw it all into your house savings. How Big of a Down Payment Do You Need? As we wrap it up, there’s one last important question we need to answer: How much should you save for a down payment? Let’s break it down. You should aim to put down at least 20% of the home price to avoid paying private mortgage insurance (PMI), an extra fee that runs about $75 a month for every $100,000 you borrow. A smaller down payment like 5–10% is okay too for first-time home buyers, but be ready to pay PMI. Keep in mind, you may not want to buy a house with a monthly payment that’s more than 25% of your monthly take-home pay on a 15- year fixed-rate mortgage.
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