Tips for Accumulating a Down Payment
- Save – Look for ways to reduce your monthly expenditures to save toward a down-payment. You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings. Most people save a couple of years for their down payment. Practice
- Make your payments starting today – My mom taught me this strategy years ago. Start making your new mortgage payment today. Once you qualify the difference between your rent and your furture mortgage payment, start saving in a special home account. This wil do two things. One, you will be saving more for your down payment and two, you will get a feeling for what it is like to make the mortgage payment today. Try it, it really works.
- Move – You may be able to save additional funds if you can move into less expensive housing.
- Reduce other higher interest rate debt – Paying off credit cards will initially reduce your savings, but the money you will save from higher interest rates will pay-off in the long run.
- Make a deal with the seller – In some circumstances, it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.
- Sell some investments
- Get a second job and save your earnings
- Skip a year’s vacation
- Gift from Family – Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.
- Borrow the down payment from your retirement plan – As a last result this is an option. Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
