We are here to give you some very practical and simple steps on how to save up for the down payment of your dream home right here in Sri Lanka!
If you still haven’t made up your mind on how much you plan on spending on your new home or down payment, take a look at our previous article on “Buying a land and building your own home”. You can also find the entire series on “Buyers Guide”.
This article explores practical ways of cutting down expenses and maximizing your “Dream Home Fund”. We have done all the background work for you, checking with banks and other financial institutions in Sri Lanka on how much you will need to save for your down payment.
Brace yourself, this is going to be a very enlightening read!
First things first, a down payment is a lump sum of roughly 10-20% of the total cost of the house which you intend to buy. Financial institutions and banks will only give you up to roughly 70-80% of the purchase price.
If you are not heavy on saving up, it can seem like a lot of change initially, but living in your very own home can be a game changer for both you and your family. It’s a long term investment that is definitely worth the short term saving spree!
Here are five simple steps to make you become a proud homeowner.
1. Plan out how you are going to save and how much you are going to save for your down payment.
Let’s break this down into three parts.
(i) The higher your down payment is, the lesser your mortgage amount and your monthly instalment in return.
Once you have made a decision on the price range of the house you want to buy, Forbes Money under 30 suggests that the best option is to think of a loan of 15 years that doesn’t cost more than 25% of your monthly income as an installment.
(ii) Time period to save up for your down payment.
This is entirely up to you, it’s important to save as much as possible because the general goal is to make the monthly payment as minimal as possible.
(iii) Selecting the ideal medium to save your money
It’s generally best if you select a separate savings account with very limited access. You may not generate a lot of interest but you won’t be losing money either, this option also enables you to access the money when the need arises.
2. Make sure you are debt-free before you start saving.
Yes, you read that right, as a rule of thumb, it’s always wise to start saving up for something only once you have settled all your existing debts.
We are looking at saving up a large amount of money that would undoubtedly be a long term investment, but before you start saving up for this we recommend that you are financially stable.
And what exactly does it mean to be financially stable?
While this can’t be generalized, it’s best if you are debt-free and also have a fully-funded emergency fund of 03 – 06 months expenses.
The importance of doing this is that in the event of unforeseen circumstances, you will not have to dig into your “Dream Home” fund!
3. Fit your saving goal into your lifestyle.
Nope, this doesn’t have to mean holding off on the good stuff! Let’s look at ways to have fun on a BUDGET!
Try switching to cost-effective holiday options, Sri Lanka is full of beautiful places that you can visit on a budget, try making the switch from expensive holidays to options such as homestays or hostels or try taking a train/bus ride which you will definitely enjoy.
Saving up for your down payment can be your new resolution in life, holding off on buying the latest in everything can help you save up a lot of money, let’s try to differentiate between needs and wants!
4. Figure out a side hustle that works for you.
It’s time to bring back the old skills and hobbies to make some money!
Like to bake? Make it known that you make great brownies at work. Do you have amazing concerts in the shower? Try joining a band or singing at open mic nights.
Bonus: With all the new and exciting opportunities in Sri Lanka, this one can lead you to new and exciting places in life!
5. Let’s start thinking about money!
Let’s look at everything you can do in your day to day life that will help you save for your down payment.
Here are a couple of suggestions;
- LET’S GET RID OF THE CLUTTER! Yes, try selling some of the stuff that is lying around and doesn’t bring you joy anymore!.
- Try making your coffee and meals at home, you will end up being a great cook and save a lot of money this way!
- If you have a car, try signing up for Uber. That’s a great way to earn some extra cash on your way back from work!
- Let’s work really hard for that Promotion shall we? You need the raise now more than ever!
- Let’s stop shopping online when we are bored!
- Try out thrift stores!
This is the new trend in town. You can also get your hands on great stuff for amazingly low prices. WIN WIN!
- Lets cut down on some habits, cutting down on your vices can save you a lot every month, and it’s also great for your health, you don’t want to be sick in your new home!
- Try Saving up the extra cash.
It’s great when someone gives you a gift of cash or some unexpected source of income pulls through for you, it’s important to be mindful of what we do with this cash, saving it for your down payment is a great idea, just saying.
A journey of a thousand mile starts with a single step; We hope this article helps you see that with just a little bit of changes to your lifestyle, saving up for your down payment is not really anything hard at all and that you can get started on it in small ways.
If you want to check out your options or would just like to know more about what’s out there for you, get in touch with Kelsey Homes; the premier housing developer in Sri Lanka with over 35 years of housing excellence!