Saving for a Big Down-Payment

 

You’ve been thinking about buying a house for a long time or about getting a bigger place, but that 20-percent down payment idea is killing you. Don’t let it. You can do this. Here’s how to set the big and little goals necessary to achieve the dream.

First, decide now what your price range is, then set your down payment goal. Thinking about a $400,000 house? Easy math—you’ll need $80,000 in equity or hard cash to avoid paying private mortgage insurance for the life of the loan (and yes, do whatever you can to avoid PMI). If you already own a home, that journey’s a lot easier. If you’re renting, Step 2 is harder, but doable.

Second, establish a second savings account and then decide on either the set amount you’re going to put in every paycheck or a percentage of money earned. Don’t think you have room in the budget? Then you’re either never getting that house or you shackle yourself to PMI payments that you’ll never get back (and likely won’t even get tax credit for again).

Third, choose a percentage of every expenditure that you’ll put into that new savings account, too. Just spent 40 bucks on dinner? Put $4 into the account. Five bucks on coffee? Put a buck in the account. It’s a way to increase your savings or spend less on stuff because you know it’s going to cost you extra. Either way, you come out ahead.

The key is, stick with whatever you decide. Be disciplined. That down payment will pile up faster than you think.