If you are considering homeownership, you may be nervous about the prospect of coming up with the down payment. This amount, usually between 3% and 20% of the cost of your home, is paid upfront and not included in your loan. While it is true that there are an increasing number of programs available offering assistance with down payment and closing costs these programs are not for everyone. You may not qualify for such a program, or if you approach your loan with an eye on the future you may realize that you will save several thousand dollars on the back-end by coming up with a few thousand up front.
If you can come up with the money you will need for your down payment and closing costs you will save significantly in the long run, but how to get past the pinch now? Depending on the cost of your home, your down payment could total several thousand dollars. Don’t panic, get creative.
- First and most obviously review your budget. You may find places to cut back or make changes. Suggestions you may have heard before include bagging your lunch, carpooling, washing your own car, canceling health club memberships and borrowing rather than renting movies and music. You will be surprised to find how easily you can save an extra $100.00 each month. If discipline is an issue try setting up a savings account and using the automatic deduction option; you can’t spend the money if you don’t have it.
- If you just can’t find ways to save the money look for ways to earn a little extra. Can you get a second job, have a yard sale or offer a service on a freelance or consulting basis?
- Consult the home buying section of your local newspaper. Each week, usually on Sunday, the paper contains listings of home buyer education programs and seminars. This is the best place to learn about grant, incentive and discount programs available in your community.
- Take a look at your 401k or 403b. These retirement plans often carry provisions for withdrawal if the funds are to be used for purchase of your primary residence. Make sure you fully understand the implications of any early withdrawals to avoid unpleasant surprises at tax time.
- Ask friends and family for down payment assistance in lieu of presents on gift giving occasions. You may need to provide a gift letter (a statement of the amount gifted and the gifter’s willingness to forego repayment) at closing time.
- If you find it difficult to save regularly, consider increasing your deductions for a bigger return at tax time. Use the check for your down payment.
- If you are near the end of your lease consider cheaper living arrangements to boost your monthly savings.
- Review your insurance coverage. You can decrease your payments by increasing your deductible.
- Get creative on gift giving occasions. Why not give the gift of a back rub or some homemade cookies? You’ll save a bundle and convey genuine thoughtfulness.
Any substantial savings goal can seem daunting without a plan. So, make a plan and set monthly targets as you creatively generate funds for your down payment. Transfer funds into an interest bearing account as soon as you have enough. Do not carry an ATM card for this account; this one is hands off.
If it helps you to stay connected to your goal, post a chart of your progress or a picture of your new home. Write about the advantages of moving into your new home when you begin to feel discouraged about the down payment or the sacrifices you are making to meet your goal. You will make it with patience and persistence, and don’t forget to celebrate each month that you make your goal.