Posted by Jaymie Tarshis on 6:00 AM with No comments
It takes most home buyers months or years of preparation in order to save up a down payment for their home. Coming up with a large chunk of cash can seem overwhelming, especially if you are a first time home buyer. Below we have outlined 8 different ways of how to easily save up for a down payment on a home loan, along with what to prepare for in the process.
So, you're thinking about buying a home? Well, one of the first questions you might find yourself asking is, "How do I save up enough money for a down payment?"
But before we get started here are a few tips to keep in mind before you start putting away money for a home:
- Double check with your mortgage lender that the source of your down payment is approved in the loan program guidelines. Also, ensure that you know roughly how much you need so you don't accidentally end up under-saving and miss out on the opportunity.
- Ask your Realtor or Loan Officer about local housing grants, incentives, and down payment assistance programs. This could stop you from having to save much money at all. Click here to find out more about Government Housing Grants.
- Keep a paper trail of everything you do throughout the way. Your lender will want documentation of the source of your down payment.
How to save up for a down payment on a home loan
1. Savings Account - The best and most efficient way to save up for a down payment is to set aside a certain amount of money each month into a savings account. Try choosing an account that earns interest or offers incentives for not withdrawing the money for a certain period of time. A lot of times your employer can direct deposit a certain percentage or dollar amount of your paycheck directly into your savings account, eliminating any desire to spend it instead.
2. Sell Your Stuff - Have an extra car lying around or maybe a trailer you don't use very much? Sell it. Or try downgrading to something a little more affordable. If you have a bunch of little things that have accumulated around your house, have a garage sale and liquidate it fast.
3. Use Your Tax Return - That's right, you know that big pile of cash you get once a year in the spring? Perfect for a down payment. The most popular home buying season is the summer so this could be one of the fastest ways to get yourself ready to purchase.
4. Taxable Investments - Stocks, mutual funds, and even your 401(k) and IRA can all be used as funds for your down payment. Just keep in mind that you usually will be required to pay a substantial penalty when selling these items.
5. Shop Around, Eliminate Monthly Expenses - With a little investigating you can easily find ways to reduce your monthly bills. Try refinancing your auto loan to a lower rate or shopping for car insurance quotes to get your rate lowered. Some of these items can reduce $50 to $200 a month on your payments, which is that much more you can apply to your down payment.
6. Use a Gift - Many loan programs like FHA and Conventional loans will allow you to use a gift down payment from a family member and in some cases even a friend. You will need a "gift letter" signed by you and donor of the gift as well as documentation of the source of down payment from their account bank account to yours.
7. Apply With a Co-applicant - If you can't afford a down payment on your own, adding a co applicant can help split the costs with another person. Also, having a co-applicant with great credit can help you qualify for lower rates and fees.
8. Find Ways to Earn More Income - If you're barely cutting it each month trying to save money, consider getting a second job temporarily. The extra money will increase your chances of saving up a down payment, plus once you have enough saved you can always quit and the more qualifying income you have on your home loan the better.
With a plan in mind, saving up for a down payment does not have to be a difficult process. And if you still find it hard to save up money try looking into a 100 Financing program such as a USDA or VA loan that does not require a down payment from the borrower. You might have to settle for living in a more rural area than you had planned but if it prevents you from having to save up a down payment, it might be worth it.