Save for a Down Payment
Most lenders require a down payment to consider you for a mortgage. It typically ranges from 3% to 25% of the purchase price. The larger the down payment, the more comfortable they’ll probably be approving your mortgage. However, you should also remember that it may be nice to have some extra money available after you move into your new home. New carpeting, new furniture or improving the landscaping all takes money. You should not stretch yourself too thin. Here are some ways to save for the down payment:
As simple as it sounds, most people end up saving for a couple of years to accumulate the amount needed. This may mean less or cheaper entertainment or dining out. One easy way to save is to enroll for an automatic savings plan at your financial institution. Have a certain amount transferred from your checking account to a dedicated savings account each month. This provides some discipline and you may be able to use a money market type of account to earn higher interest.
Borrow the down payment from your retirement plan
Many company sponsored 401(k) or profit sharing plans have provisions to let you borrow the down payment from your retirement plan, but you should carefully consider your options. Check your plan details with your Human Resources department and be sure to talk to a tax advisor regarding tax implications.
Living in a cheaper apartment while you accumulate your down payment can help you get your money faster. Cheaper rent may help balance a longer commute to your job. If you’re just starting out or are considering changing jobs, you may want to consider a area that has a lower cost of living.
Gift from Relatives
Many relatives are willing to help with a first home purchase. Be respectful of their generosity. You will also want to ask your lender if there are any limitations on the total amount of your down payment that can come from gift funds.
Reduce high interest rate debt
Paying off credit cards will take some of your savings, but will save you money by eliminating the high interest rates found with most bank credit cards.
Get a second job and save your earnings
Skip a year's vacation
Buying a home, especially a first home, is a big financial and emotional step. If buying a home is important to you, do your financial homework, investigate your mortgage options and determine what level of monthly mortgage payments will be affordable and comfortable for you.