Conventional mortgages typically require borrowers to put down 5%-20% of the loan value. Although this may not sound like a lot, when it comes to purchasing higher-value homes or if you’re a first time buyer, finding ways to come up with the cash can be daunting.
Experts advise borrowers to set a reasonable time frame and be realistic when it comes to determining a savings plan. While the traditional ways to acquire down payment funds are good options (high-yield savings account, low money down loan programs), there are other ways to save that you may have overlooked.
Start Living Below Your Means
By reducing your monthly expenses, you will have more cash to put into your home savings plan. Join a coupon group and create budget-friendly meal plans. If you’re home during the day, try to only use natural light to reduce electricity costs. There are lots of ways to tone down your lifestyle while saving money. It just takes discipline.
Put Your Talents To Work
Do you have a special talent or trade skill that you could use to make money? Maybe you’re really good at photography or fixing computers. Do you like to write? Consider doing some freelance work. Are you a painter or sculptor? Try selling some of your creations.
Take a realistic look at the home you want to purchase. Is it really within your means? If not, there’s no point in cutting back on everything and moonlighting 5 nights a week. Instead, lower your expectations a little and look into some other properties.
401K or Other Retirement Plans
While most retirement plans penalize you for early withdrawals, if the money is going toward a down payment on a home, many plans will allow it with no penalties. Check with your financial adviser for details.
Ask For A Raise
The old saying goes, “whatever you are, be a good one.” Even if you hold a menial position, always try to go above and beyond. This will show your boss that you are a valuable worker who they want to keep around. After you’ve proven yourself to the company, schedule a meeting with your boss to discuss your future with the company.
Get A Roommate
While this may not be the best option for everyone, consider A) renting out an unused room in your home to a responsible adult or B) moving in with parents or other relatives. Whichever you consider, make sure there are clearly established rules and a well-defined time frame. For example, if you think you can save up enough money for a down payment in less than a year, tell your roommate(s) that you can only do a 10 month lease. If you plan on moving back in with Mom and Dad, negotiate an acceptable time frame for everyone involved.
[Related Story: Understanding a Rent-To-Own-Purchase]
While saving for a down payment can take time and discipline, it is your first lesson in the responsibility of owning a home. Talk to your real estate agent or mortgage lender for more information on creating a financial plan for your home. There are also home financing solutions for qualifying borrowers such as USDA mortgages, FHA loans, and VA mortgages which may have lower down payment requirements.