4 Things You Shouldn’t Do If You’re Saving for a Home Down Payment
Tuesday, January 14, 2020, 6:00 AM | Leave Comment
Buying a new home can be one of the most exciting times in your life. Getting to that point, however, can be a challenging road, at times.
The biggest challenge for many people is saving enough money to afford a down payment, which is recommended to be 20% or more of the overall cost of the home. While it’s a big challenge, it’s not an insurmountable challenge, and it’s one that many, many people have been able to overcome.
If you want to join the “successfully saved for a down payment club,” here are four things you shouldn’t do.
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Invest the Money
Once you start putting together a small sum of money for your down payment, it can be tempting to try and grow that money more quickly by investing it in high-risk financial products. However, investing in high-risk assets can be a double-edged sword. To be sure, your savings will grow quickly when the stock market is up. On the other hand, if there is a sudden downturn, you will lose the money you invested and be back at square one when it comes to a down payment.
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Allow Major Fluctuations in Your Bank Account
As you draw closer to making that down payment, it’s crucial that you avoid any major fluctuations in your bank account. Lenders want to make sure that the people who are applying for a mortgage, who the lender is effectively investing in, are a safe investment. If they look at your bank history and see wild fluctuations in your checking account, that will raise a red flag that could cause you to be denied or diverted to one of several alternative mortgage programs. Throughout the saving process, it’s important to make slow, steady progress without any major unexpected purchases or cash infusions.
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Ignore Your Goals
Since most down payments require a fairly substantial sum of cash, it can be easy to see your homeownership dreams as some far-off milestone. Unfortunately, if you do that, you’re unlikely to set daily, weekly, and monthly savings goals for yourself that will allow you to reach that milestone more quickly. Instead, you’ll be content to save a little here and withdraw a little there, assuming that because homeownership is so far off that it doesn’t matter, anyway. If you have clear goals, you will see how much every cent matters toward the larger goal of calling a house your home.
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Spend Money “Sprucing Up”
Another problem that results from seeing homeownership as a far-off goal is that you’ll tend to invest more in your current residence than you would if you saw homeownership as an imminent reality. Rather than waiting to make a new house your own, you spend money to “spruce up” your current residence, spending precious money that could be put toward a down payment. While you don’t have to live in an eyesore, it’s important to remind yourself that the major renovation projects can wait until you make your big move.
Above all else, it’s important that you don’t compare your progress toward homeownership with other peers. When you see how quickly they’re progressing, it could cause you to want to give up. If you stay focused on your own goals, you’ll find that you arrive at your destination more quickly than you ever dreamed you would.
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