How to Save for a Down Payment on Your First Home

First home is always a special goal to achieve. But it remains a tough goal to achieve for many. Even gathering the finances for the down payment looks like long term heavy burden. So, the dream to own a house looks like an unachievable task and makes one feel that it will take years to fulfil that. But, let’s learn how you can make that dream become a reality at the earliest. Let’s know the way to your first home.

What is Down Payment:

• Down payment: This is a portion one needs to pay towards the purchase of a home. The one that is to be paid upfront for the purchase to start.
  • The more one pays as down payment the less will be the monthly mortgage payment or EMI payment. This can further help reduce the interest you pay on your loan.
  • Usually one needs to pay 20% of the purchase price as down payment. Many lenders offer loans with even lower down payments, say 3-5% of the purchase price. However, if the downpayment is low, the loan burden would be high and so is the interest you need to pay.

Strategies to Save for Down Payment:

1. Prepare your budget:
   • Track your expenses: Keep a watch over your income and expenses and identify areas where you can control your expenses and save money.
   • Prioritise Saving: Each month set aside a dedicated amount as savings.
   • Use 50/30/20 rule: You can try the 50/30/20 rule to estimate how much you can save after your needs and wants are fulfilled.
2. Increase the income:
   • Get a good appraisal: Try upgrade your job for a better pay or find a job that is high paying than the existing one.
   • Try additional sources of income: Try options like freelancing, tutoring or any other source of income that you can do in your free time.
   • Your skills can be your income: Work on your skills through training so that your earning potential increases.
3. Reduce expenses:
   • Reduce the wants: Identify those expenses which are just your wants not needs like frequent dinners, entertainment and subscriptions.
   • Cook at home: With the changed lifestyles, dining out and online orders are on rise. They are quite expensive. So, cook at home and save money.
   • Shop smart: Find deals and discounts, compare prices before making purchases to get lower prices.
4. Explore savings options with high returns:
   • Find out options with competitive interest rates: Your savings will grow in high pace with options giving higher interest rates.
5. Benefit from employer-sponsored programs:
   • Utilise the plans given by employer: Private health insurance might be expensive, take advantage of employer provided insurance to cover your family as well.
   • Stock purchase plans: If your company has the option of employee stock purchase, don’t miss it.
6. Sell Unwanted/Unused items:
   • Clear the clutter: Do you have that music instrument which you haven’t touched for more than a year. Consider selling it or at least renting it. Similarly find all those things which you haven’t used in a while and sell them.
7. Automate the Savings:
   • Automatic transfers: Set up and schedule automatic transfers from your salary accounts to your savings every month.

Remember that saving for down payment is not a task to achieve in one day. Track your progress regularly and adjust your plans. Set smaller goals and when ever you reach them, celebrate and appreciate yourself so that it gives you confidence to keep saving. As saving is a time taking task never feel disappointed and stay patient.

Small steps yet consistent steps will definitely take you home.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.