How to Save for Closing Costs
Jul 28, 2020
Closing costs – the fees charged when you take out a home loan – vary greatly, but they average between 2 and 5 percent of the home’s purchase price. On a $200,000 home, that’s roughly $4,000 to $10,000.
That’s a chunk of change that can seem prohibitive, especially if you’re already burdened with car payments and student loan debt. But it doesn’t have to keep you from owning a home.
There are down payment assistance programs to help first-time homebuyers. You can also save on closing costs at Bell Bank Mortgage, which does not charge an origination fee.
If you’re even thinking about buying a home, the first step you should take is to meet with a mortgage lender. They’ll talk about your goals and can answer questions like how much home you can afford and what your closing costs might be.
Next, start saving as much as you can. These tips can help you save $4,000 or more toward your closing costs in one year.
Pay yourself first.
Set up your direct deposit to automatically put a certain amount of money into your savings account with each paycheck. Can you afford $50 a paycheck? That will give you $1,300 in a year if you’re paid every two weeks. How about $100 a paycheck for a savings of $2,600 in a year?
Take advantage of programs to help you save, like Bell’s ChangeSaver program.
It rounds up every purchase you make and deposits the difference into your savings account. If you round up your purchases by $2, and you make 50 purchases a month, that adds up to savings deposits of $100/month or $1,200/year. Plus, Bell matches 5 percent of your ChangeSaver roundups, up to $250/year. That means Bell will add $60 to your $1,200 ChangeSaver savings.
Track what you spend.
If you don’t track your spending or follow a budget, it’s too easy to impulse buy. If you have a budget, are there places where you can cut costs?
- Save $600 toward your home by forgoing cable for a year (estimating it costs $50/month).
- Invite friends over for a game night instead of going out. If you spend $100/month going out, you can save $1,200/year.
- Even lunches at a restaurant once a week can cost you $30-$50/month. And if you treat yourself to one coffee shop beverage a week, that’s around $20/month. Pack your lunches, bring coffee from home, and save yourself $50/month (or more!)
Keep your goals visible.
Going out to lunch or a movie can seem a lot more fun than brown bagging it or watching a video at home. But in the end, being able to pay your closing costs and get into a new home is a lot more fulfilling. When you feel deprived at not being able to treat yourself to a unicorn Frappuccino, it helps to be able to see and touch a tangible representation of your goals.
- Carry a picture of a house in your purse or wallet to remind yourself why you’re working so hard to save.
- Hang a goal chart, like a fundraising thermometer, in your home, so you can see and track your progress.
- There are also free cell phone apps, like Bell’s CardValet® program, that can help you stick with your budget. With CardValet®, you can set spending limits for general use and specify thresholds by merchant types to make sure you don’t go over budget.
Following all of these tips, you can save roughly $4,000-$6,000 in just 12 months. It will take dedication, but when you unlock the door to your new home, it will be worth the sacrifice.
Contact your mortgage lender today to discuss your options.
* CardValet is a registered trademark of Fiserv, Inc.
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