Mortgage 101: 5 Sneaky Ways to Save Extra Money For Your Down Payment
Getting on the Road to Homeownership
Homeownership is a big decision, but when you’re ready, you know it. In social conversations, the topic often turns to how much the home down the street just sold for. When you see a “for sale” sign, you often stop to check out the accompanying flyer, and you find yourself disappointed when they’re all gone. Instead of watching silly cat videos, you start checking out real estate websites and playing around with mortgage calculators… There’s no question: you’ve got the bug!
There’s more to purchasing a home than just searching through the local listings though — you’ve got to actually get your financial ducks in a row. And while you don’t absolutely need a down payment to purchase a home, it’s certainly not a bad idea to save up as much as you can. If you can afford 20% you’ll be able to sidestep mortgage insurance. Also, having a substantial down payment puts you in a stronger negotiating position and lowers your monthly payments. For many folks, though, saving for a down payment seems easier said than done. Still, for most homeowner hopefuls, there are ways to put a little extra money away, and a few sources of cash that might be overlooked. Don’t worry – eventually, it all adds up.
Stop Paying Luxury Tax
Luxury Tax: one of the most dreaded squares on the Monopoly board. Sure, it’s only $75, but land there enough times, and it can really start to cramp your style. Well, many of us subject ourselves to little luxury taxes each day, sometimes without even realizing it. That fancy coffee you get every morning? Skip it. Make coffee at home instead. You don’t have to suffer; buy some great beans, a pour-over brewer, and an industrial capacity ceramic travel mug. You’ll never miss your fancy coffee when you can make your own at home, and you’ll be able to sock away an extra $100 or more every month. While you’re at it, start brown-bagging your lunch. Even if you spring for that Thai place next to your work a once a week rather than every other day, you’ll still be saving money. The same goes for expensive nights out on the town. It’s OK to treat yourself once in awhile, but consider inviting friends over for potluck dinners or games and drinks. Bar tabs and restaurant checks add up in a hurry. Don’t get us wrong; you don’t have to live a joyless, spartan existence to save up for a down payment but the more fat you can trim from your budget, the better off you’ll be.
Sell Your Old Stuff
Most of us have seldom-used, but perfectly useful things just lying around the house. Why not cash them out? Have a garage sale or sell your things on eBay, Craigslist, or Etsy. You may even find that some of your old things are worth more than you thought and every item you sell is one less thing you’ll have to move when you do finally close on your dream home.
Examine Your Transportation Budget
We all like the freedom of having our own set of wheels, but when you’re saving up for a down payment on a home, it’s worth considering cutting the extra expenses that car ownership entails. Can you get to work using public transit? If you can hop the bus or light rail to work, and maybe rent a car for the occasional weekend getaway, then you can subtract your car payment and insurance premiums from the “depreciating liability” category, and add them to the “sound investment” fund.
Get Some Assistance
If you’re a first-time homebuyer, then you may qualify for down-payment assistance. There are state, local, and federal programs, and your employer may even offer some sort of assistance. You’ll probably be required to take a homebuyer education course, but if this is your first rodeo, you’ll likely benefit from that, as well.
Another option is family. Have a doting and well-heeled relative? Why not ask them for assistance? The worst they can say is “no.” Just make sure the terms are clear up front. If you’re thinking it’s a gift but they’re under the impression it’s a loan, well, we all know how that could play out.
Use the IRS Savings Plan
Never heard of it? Well, technically there isn’t one. But you can set your income tax withholding to zero, and at the end of the year, you should have a pretty nice chunk of change to put toward a down payment.
Your Discipline Will Pay Off
A 20% down payment isn’t a necessity anymore, but it’s still a definite advantage. Even if you can only manage to scrape together 10%, you’ll be much better off than if you had nothing to put down. Happy saving, and happy house hunting!