Saving for a downpayment on a home, especially in the San Francisco Bay Area can require careful planning, creativity, and patience.
Data from Realtor.com indicated that in January of 2022, the median listing home price in the North Bay was $775,000. For a 10% down payment you would need to have roughly $77,500 saved.
While every financial situation is different, knowing some different ways to save could help you save faster, enabling your family to buy your next dream home sooner than you think.
Understand your Why
Understanding your individual or family WHY is important. Think of your WHY as your mission statement. It is the essence of what motivates you and your family to achieve the goals you do. Your WHY should ignite something inside you.
If owning your own home aligns with your mission statement then you and your family will be motivated to prioritize saving for the down payment.
When you have to make a tough decision or you begin to lose focus, your WHY will help bring focus, clarity, and renewed energy.
Create a Budget
Budgets are tools that allow us to put our money to work where it really counts.
There are a number of different ways to budget, the most important part of any budget is actually sticking with it, consistently tracking purchases and evaluating your monthly spending.
Once completed, your budget will help you understand where your money is going and how much you have to fund your down payment goal.
Using a budget will add massive impact to your savings goal.
Pay Yourself First
Paying yourself first is a way to prioritize your savings and investment goals before you pay other bills.
Practically, what this means is that when individuals get paid they deduct a specific amount and send it to their savings account or their retirement savings account.
While I don’t advocate skipping payments on your bills, especially when you are trying to maintain a good credit score, paying yourself first can remove the temptation to spend those funds instead of putting them towards your savings goals.
Automate Your Savings
Automating savings is a powerful tool to speed up your down payment accumulation.
Many employers allow individuals to split their paychecks between multiple bank accounts.
An easy way to leverage this is to create a new account specifically for your dream home and direct a portion of your paycheck into this account.
By making savings automatic, you instantly make it a habit and will steadily begin to march closer and closer to your goal.
Re-think your current housing expense
Housing is generally the largest expense in a family or an individual’s budget. Because it is the largest part, it is generally the place where you can see some impactful savings.
If you have an extra bedroom, you could find a roommate to help pay rent, utilities, and internet. You could leverage a website like Airbnb or VRBO to rent out a room. You could also move to a less expensive place.
Depending upon your living situation, you could quickly begin to save money on rent, utilities, and other expenses like cable/internet by leveraging some creative house hacking techniques.
Cut your Subscriptions and Memberships
Subscriptions and memberships can quickly add up to a significant amount.
The average person spends $273 a month on subscriptions.
When you are building your budget be sure to reevaluate all your subscriptions and memberships.
Maybe you can drop your gym membership and find a neighborhood workout group. Do you need a subscription to Youtube, Netflix, Udemy, and Spotify?
Not only does entertainment cost money, but it also costs time. The average Netflix subscriber watches 3.2 hours of content a day. That 3.2 hours could be spent in other ways that could help you save faster for your down payment.
Investigate your automatic bills
Many people wisely put their bills on autopay. It is a strategy that can eliminate late payments and protect your credit score.
However, automatic bill payments can quickly be forgotten and over time you can end up paying more and more for your services.
A great example is a cell phone bill. Over time, cell phone carriers slowly raises their prices and it is generally not noticed when the bill is automatically paid each month.
As you are working hard to free up resources to fund your dream home, be sure to investigate the bills you have on autopay. You might find that your car insurance or cell phone bill has gotten significantly higher, and it might be worth calling in to negotiate a lower rate.
Sell Unwanted Stuff
Selling unwanted stuff not only puts money into the down payment fund, but it also helps to declutter, leaving you with fewer boxes to move when you do buy that dream home. Not to mention, a decluttered home has been shown to bring more focus and productivity to your day.
Websites such as eBay, Facebook Marketplace, Craigslist, and Poshmark can make it easy to trade your unwanted stuff for cash!
At some point in this process, you will think of something you need but you won’t want to spend the money.
The first place to start looking is on Craigslist or Facebook Marketplace.
The people of Sonoma and Marin counties are always giving things away for free and if you are lucky, you might just find what you need for free. It can take some time, depending on what you are searching for, but it can be done.
I have found free end tables, chairs, a kitchen table, glass baby bottles (for my newborn twins), and plants galore.
Without a doubt, this can be addicting. If you are not careful, your dream house will need to include a 5-car garage to stash all the treasures you find. Be mindful to only bring home the things you and your family actually need.
Don’t be too cool to stop and look at free piles
Have you ever noticed that on a warm, Saturday morning your neighborhood turns into a giant free pile?
Free piles are prolific in the North Bay. You can find them by walking around your neighborhood or by searching Craigslist and Facebook Marketplace.
I recently found 2 Mega Blok sets for my kids. I looked them up on Amazon and they are $25 each. In one day, I found $50 worth of Mega Bloks. I’ve also found free kid’s books, terracotta planting pots, citrus fruit, Nordstrom quality clothing, and much more.
Obviously, you can’t rely on free piles for all your needs. But if you are not too cool to stop and take a look, you can find $100’s of dollars worth of stuff you won’t have to buy. This allows you to put that saved cash towards your dream home fund!!
Prep your grocery shopping
The average person spends $114 each time they go to Costco. It doesn’t take too many unplanned purchases to push that to $200.
Having a plan when grocery shopping can save hundreds of dollars a month.
Before you head to the grocery store make sure you have a list of items that you need. If you are willing, do your weekly meal preparation before you head out. This minimizes the need to run to the store last minute. This wastes time, gas, and can mean paying higher prices.
Delete Expensive Apps like DoorDash
In 2021 the average DoorDash order was $37.28. If you were to order DoorDash twice a week, that is $74.56 a week, or almost $300 per month. If you order 3-4 times a week, that would be as much as $600 per month.
Convenience can cost a premium.
It can be far less expensive to be organized and plan your meals for the week, go grocery shopping, and cook your meals at home.
An older statistic from the bureau of labor statistics indicates that the average American spends $3,000 a year eating out. That is a lot of cash that could be put toward your down payment.
Debt consolidation rolls multiple debt payments into a single payment. This is typically more appropriate for individuals with high-interest debt such as credit card debt.
One of the advantages is getting a lower interest rate on the overall debt, which could save you thousands of dollars over the life of the loan. It could also translate into a lower payment. Depending on your time horizon, debt consolidation could be a good option.
For example, let’s say a family has 3 credit cards with interest rates ranging between 20% – 25%. If the family has good credit, then they might be able to roll it all into one loan with a lower interest rate.
I highly recommend paying off expensive credit cards before you apply for a mortgage. Paying them off could improve your credit score if you have a high credit utilization ratio and it would lower your debt-to-income ratio.
Ask for a raise
So far, we have been very focused on cutting your expenses as a way to save for a down payment, but another way to do this is to make more income.
If you have the ability to work more and make more money, it could be a great way to quickly add to your growing house fund.
For example, if you have some performance goals at work that could translate into a bonus, start focusing on that.
Another way to make more money is to ask for a raise or apply for a promotion.
If there is no room for growth at your current employer, or maybe you have no interest in that, another way to improve your savings is to start a side hustle.
There are hundreds of ways to earn money through a side hustle. Just type “side hustle” into your search bar and you will get millions of results. Many of these can help you start earning extra cash without having to invest a dime.
A few things to consider are how much time you have to dedicate to side hustle, what are your interests, what resources or skills can you leverage, and what will your earnings potential be.
Have the right team
Starting this journey with the right team can make a big difference in how successful you are.
Start by talking with a local real estate agent. They will have up-to-date information on where real estate markets are headed and can help you begin to think through your dream home and what it might cost.
You could also partner with a local financial planner to help you take a look at your overall finances and your family’s goals. This will help you to see how saving for a down payment fits into the overall context of your financial plan, ensuring that a home will strengthen your financial future.
A loan officer is also a great asset to your team. They will be able to help you understand one of the most critical questions you will need to answer: “What can I afford?” If you don’t know a loan officer, your real estate agent or financial planner can help connect you with one.
Having the right team to walk with you on this journey is critical.
Clear Creek Conclusion
The process of saving for a down payment will take focus, planning, discipline, and time. But with the right plan and the right team, you could significantly improve your ability to save.
Owning a home can be an amazing opportunity. Remember, some of the greatest things in life take a great amount of effort and sacrifice to achieve.
We are excited you are starting this journey and we are here to help make your dream a reality!
About the Author: Located North of San Francisco, Jason specializes in financial planning, investment management, and tax strategies for families across the west coast.