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Take the First Step to Your Dream Investment: How to Save a Sizeable Down Payment
from:Welcome to Grown-Up Land.
Only recently, you have decided that you are finally mature enough to own your very own home. You have looked around your neighborhood for some potential good-buys, and thanks to some good fortune, have found a considerable number of candidates.
You’ve shortlisted a number of houses and have made the list even smaller by choosing your top 3 favorites. Now it’s just a matter of determining if you will be able to pay for one of them.
And with the matter of payment comes first the issue of a down payment – or more specifically, the issue of where to get your down payment. You would really want to be able to purchase your house as soon as possible, before the prices rise and ultimately become out-of-reach. The question is, how are you going to do it?
Ideally, you should be able to pay 20% of the total price of the house as down payment. This is an ideal rate for both the buyer and the lender. At 20% a buyer will be less likely to give up on the loan than at 10%, ensuring both the lender and the buyer that they will be able to gain from the transaction.
So how do you get that all-important 20%? Some people think there’s only one way to save for that down payment, and that includes saving a certain amount of money every day, every week, or every month, until your savings amount to the down payment you need.
And while the above-mentioned method is a sound way of saving, you shouldn’t be limited to it: there are a number of other ways that are less time-consuming and just as effective in helping you overcome that down payment hurdle that’s keeping you from your dream home.
Read on to get some useful tips on how you can save a sizeable down payment.
Tap Into Your 401(k)
To get that down payment, you can tap into your 401(k), which you will have to pay over a period of five years or more, with interest. This method, however, has both advantages and disadvantages.
One of the advantages of getting a loan from your 401(k) is that it is not considered a debt by lenders when they assess your debt qualifications.
A major disadvantage of loaning from your 401(k), however, is that should you have or decide to leave your current job, you will have to pay the loan in full 90 days before you quit or you are officially terminated.
Ask for the Help of Non-Profit Organizations
Individuals with a low to moderate income may ask for the help of non-profit organizations that have programs which are aimed at helping people get the opportunity to buy their own home.
Some organizations have volunteers who rebuild old houses, and afterwards tie up with lenders who offer low-down payment or no-money down loans for buyers. Some also require that potential buyers invest on their homes with “sweat equity” – that is, by helping in building their own home as well as other people’s homes.
Mutual Funds
If you’re willing to wait a few more years to be able to get a down payment for a house, you can consider investing your money in mutual funds and time deposits. Ask the help of a financial adviser to help you decide where your money will get the most returns.
Control Your Budget
If you still plan to take the save-until-I-have-enough route, then here is a very helpful tip on how you can save more effectively for that down payment.
Write down everything you purchase. Don’t leave anything out – even if it’s a small candy bar that cost you a dollar. Do this for a week, and afterwards assess your spending habits. See what you can improve on, and what expenses you can avoid. Divide your expenses into categories and allocate a certain amount of money for each category.
Ask the Expert Advice of Your Realtor
If you’re really set on buying a house, perhaps it’s best to look for the services of a realtor. He will be able to give you expert advice on the best way to pay for your house. Just be sure that you have a trusted and credible realtor.
With the right determination and the right method that’s most suited to your saving and spending habits, you’ll definitely be able to save up for a house of our own.
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