Saving for a down payment
Many people save for their down payment for several years. The higher your down payment is, the lower your loan and monthly payment will be.
Here are some ways to help make sure you have enough money when it's time to get your mortgage.
1. Transfer a fixed amount into a special savings account every month.
This is the most popular—and convenient—way to save. Set up an automatic direct deposit into a savings account. Commit to never use these savings for any purpose other than your down payment.
2. Skip vacations for a year.
If you save the money you would have spent vacationing, you can make significant contributions toward a down payment.
3. Lower your expenses.
Review your expenses and look for what you can reduce or eliminate. Put the money you would have spent on these items into your down payment savings account.
4. Reduce your high interest rate debt.
High interest rates on credit cards can seriously limit your ability to save. Pay off your high interest rate credit cards. Start with your highest interest rate card; when you've paid the entire balance, close the card, and proceed to pay off the next. At a minimum, transfer your credit card balances to the card with the lowest interest rate.
5. Borrow from a relative.
Many parents or relatives help out when it's time to buy a first home. Gifts can come from your family, spouse or a domestic partner. Just be sure to include the amount of the gift on your loan application.
6. Borrow from your retirement plan.
Look for penalty-free withdrawals for home buyers in your plan. Many company-sponsored 401(k) or profit-sharing plans allow employees to borrow against their savings to purchase a home. Your Human Resources or Payroll department can help.
7. Sell some of your investments.
Think of this simply as a way to move some of your current investments into another investment vehicle – your home! As you make payments on your mortgage, you accrue equity in your home. As the value of the home increases, so does the return on your investment.
8. Get a second job.
Even temporarily, earnings from a second job can help you make substantial contributions to your down payment savings.
9. Make a deal with the seller.
A motivated seller might take out a second mortgage to cover some of the purchase price. If you're considering this, make sure a qualified attorney reviews everything from top to bottom.
10. Look into down payment assistance.
Some organizations might help you with your down payment. See if you qualify with the Federal Housing Administration, the US Department of Agriculture Rural Housing Service and the Veterans Administration. Also check out local housing authorities to see if they have programs to help.
Keep it up. You're getting smarter about home buying.
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