So, you’ve decided to stop renting and take the plunge into the homeownership pool! It’s time to get your ducks in a row. After you’ve reviewed your credit and resolved your debt issues, there’s one more huge hurdle between you and your house purchase. That’s right, it’s your down payment – the amount of money you “put down” when you buy a house. Let’s talk about how to save money for a down payment.

This figure is important for several reasons. For starters, putting at least 20% down on a new house will help you avoid paying private mortgage insurance, or PMI. Second, putting down a substantial sum of money can help you get a better loan with a lower interest rate. Third, saving for a substantial down payment makes it easier to afford a home you genuinely desire rather than being forced to settle.

Your down payment is more crucial than many people understand, no matter how you slice it.

And if you want to be a homeowner in the near future, you need to start saving right away. Do you want to get started? Here are eight ideas to help you save money for a large down payment on a new home:

Determine How Much House You Can Actually Afford

Before you start saving for a down payment, you need to know how much house you can afford and how much you need to save. A housing affordability calculator may usually assist with the first element.

You can typically obtain an indication of how much you might be able to spend on a home by entering information about your own income and debts. It’s quite simple to work out a savings target once you’ve established a price range to aim towards.

If you want to save at least 20% in order to avoid paying PMI, simply multiply your target house purchase price by .20.

A $200,000 property multiplied by.20 equals $40,000, which is the down payment you should aim for. It’s completely fine if you intend to save less. Aiming for 20% is a lofty objective, but it isn’t realistic for everyone.

Create a Separate Account

Once you know how much you need to save, open a targeted savings account to keep your new housing fund distinct from the rest of your savings. By keeping it separate, you can avoid mistakenly spending your designated savings on something else.

And, because you’re saving to meet a specific financial goal, keeping those assets separate makes it far easier to track your progress.

The finest savings account alternatives are virtually always available online. Not only do online accounts typically provide greater interest rates, but they also allow you to transfer money fast and easily with the click of a mouse.

Automate Your Deposits

If you’re afraid of becoming distracted and forgetting to save, consider making your savings automatic. Setting up automatic bank withdrawals or deposits allows the bank to handle the majority of the work for you.

Consider having your bank move a specific dollar amount from your primary checking account to a designated savings account every paycheck or on the first or last day of the month.

You’ll never have to worry about it again if you have the bank do it automatically each month.

Save Those Surprise Windfalls

While saving money from each paycheck may get you there in time, adding more money to the pile will get you there even faster. If you frequently receive windfalls, bonuses, or increases at work, be sure these “extra” sums of money do not go to waste.

Rather than spending your tax refund on a new item or a vacation, direct it to your down payment fund right immediately.

The same should be done with any end-of-year bonuses or other windfalls you may obtain at work. By putting money “out of sight and out of mind,” you can save it for when it really counts.

Maximize Cashback Credit Card Usage to Earn Rewards, Then Put Them Into Savings

If you don’t already have a cashback credit card, now might be a good time to obtain one. Some cashback cards offer between 1 and 5 percent cash back rewards on every purchase, depending on the card type.

You can get cashback for every dollar you spend on groceries, utility bills, and home expenses if you have a cashback credit card. If you let those awards accumulate over time, you might easily earn hundreds, if not thousands, of dollars towards a down payment on a new home.

Of course, this approach is not for everyone. Getting a cashback card can be a sensible option if you have no trouble paying off your credit card debt each month and avoid credit card interest like the plague. However, if you have previously suffered with debt, you should be extra cautious using this method.

Get Yourself a Money Market Account or a Certificate of Deposit (CD)

If you’re unhappy with the rate of return on your online savings account or simply want another means to boost your savings, you can open up a Certificate of Deposit (CD) or Money Market account. Both choices offer somewhat higher interest rates than standard savings accounts, but with far less risk.

Certificates of Deposit, or CDs, generally require you to deposit your money for a set period of time in exchange for a fixed interest rate or payout. A CD may be a good bet if you know exactly how much you need to save and how long you expect to save for your home.

However, if you want to be able to withdraw your money at any time, a CD isn’t the ideal option because you’ll have to pay a penalty if you cash out your CD before it matures.

A Money Market account provides additional freedom because you are not obligated to commit your funds for a set period of time. However, you may not receive as much interest as with a Certificate of Deposit (CD).

As an aside, numerous great online brokers, like TD Ameritrade and E*Trade, provide money market accounts. It’s not only about how to save money, it’s also about where to save money.

Bank Bonuses

If you believe credit card incentives are simple to obtain, you’ll appreciate bank bonuses. Depending on the bank, you could earn several hundred dollars just for joining up and satisfying certain requirements.

To qualify for bank sign-up bonuses, you must keep a particular amount of money on deposit for a given period of time. Instead, you’ll need to set up a monthly direct contribution to earn others.

In any case, before you sign up for any bank incentive, be sure you understand all of the criteria. You could lose your bank bonus if you misunderstand the fine print or fail to follow instructions.

Curb Your Spending

If you’re having problems figuring out how to save money for a down payment, I have one more piece of advice: Reduce your expenses!

There are times when making a sacrifice is necessary to get what you want, and this could be one of those instances. If you can’t seem to save enough to go ahead, you’ll need to cut back on your spending and consumption.

Stricter budgeting may be a bit of a buzzkill, but it will accelerate your goal of becoming a homeowner. To begin, look for “low-hanging fruit” to eliminate from your monthly budget.

Stop dining out at restaurants multiple times a week, for example. Switch plans if you’re paying a few hundred dollars for your smartphone package. If you withdraw cash to spend each month and have no idea where it goes, avoid using the ATM entirely.

We all have budget drains to deal with, and addressing yours is one of the most effective methods to save more money in the long run. So sit down with your budget and prepare for some tough cuts. It may be painful at first, but it will be worthwhile in the long term.

A Parting Word from Jerome…

Buying a home can be a life-changing experience, but it will be even more gratifying if you first have your financial house in order. A large down payment for your first house will make things easier, in addition to having good credit and keeping your debt to a minimum.

Always remember, the sooner you begin saving, the better off you will be.