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How to Save for a Down Payment on a House

By Sabrina Loh

When it comes to buying a house, deep diving on Pinterest to imagine how you’d decorate your dream living room and browsing through real estate listings online are the fun parts.

Saving for a down payment… not so much.

Buying a property is one of the most important investments you’ll ever make. The size of your down payment will affect the length of your loan, your monthly repayments, and how much you pay towards interest.

Saving up enough to buy a home can feel impossible, but with a solid plan, anyone can do it.

Step 1: Calculate your target

The minimum amount that’s required for a down payment is typically 10% of the property’s price. How much home you can afford will depend on a few factors, such as your salary and your other financial commitments.

Let’s say you’ve assessed that you can afford a RM400,000 home. The 10% down payment on that will be RM40,000, with a 90% loan.

But don’t forget that buying a property also incurs a lot of hidden costs on top of the down payment, such as stamp duty, memorandum of transfer, mortgage insurance, and legal fees.

That’s a lot of money! Experts suggest saving an additional 10% to prepare for all of these hidden costs.

Step 2: Reassess your budget

If you don’t know where your money is going every month, it’ll be harder to save for a down payment.

Work out how much money you’re bringing home every month, and assess where and how you’ve been spending it. Note how much you’re spending on necessities like rent, debt repayments, and bills, and how much you’re spending on wants such as entertainment, dining out, and subscriptions. Look for areas where you can realistically cut back.

With the savings target you set in the previous step, move some numbers around in your budget to make sure you’re putting away a portion of your income each month towards your down payment.

But remember not to confuse your savings with your emergency fund! Your emergency fund is there to protect you in the event of an emergency, like your car breaking down, a doctor’s visit, or replacing your broken phone. It should not be used as a part of your down payment!

Step 3: Set aside money each month

After recalibrating your budget, fix a minimum amount to set aside every month. If you come into some extra money from side hustles, birthday money, or a bonus from work, put some towards your debt repayments (if any), and the rest towards your down payment savings.

Consider opening a high-interest savings account and setting up an automated transfer every month when your salary comes in. That way, there’s no temptation to spend it.

Step 4: Consider downsizing

Rent is by far the most expensive expense for most people every month. If you can cut back on this area, you should be able to save for your down payment much faster.

If you’re living alone, consider looking for a housemate to share the rent and utilities with, or look for cheaper accommodation.

Moving back in with your parents is also a chance to regroup and get your finances in order. But make sure you help out with the bills and chores!

Step 5: Make more money

To build your wealth, you need to widen the gap between your earnings and spendings. There are two obvious ways to do it - you can either earn more or save more.

But in this case, why not do both?

Ask your boss for a raise (justifiably, of course) or consider switching jobs to land a higher-paying salary.

You can also turn your skills into a lucrative side hustle through freelancing. With the gig economy on the rise, it’s easier than ever to get started.

The Bottom Line

Buying a property is a major life achievement. While getting the money together may not be an easy task, the excitement and joy when you get the keys is hard to beat.

While you’re saving up for the down payment, don’t forget to simultaneously work on improving your credit score, as this will affect your mortgage interest rates and how much home loan you can get.

Tune into the BigPay blog every week to learn more about finance.

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