The down payment is often the toughest hurdle to clear when buying a home. Whether you’re considering a Federal Housing Administration mortgage loan with just 3.5 percent down, or opting for a conventional loan with 20 percent down, saving for a down payment on your first home can take years. It’s even more difficult to save when you’re juggling rent, living expenses, insurance payments and debt.
Whether your goal is $5,000 or $50,000, consider these 10 simple ways to save for your down payment:
1. Negotiate your rent. With rent likely near the top of your list of expenses, cutting its cost can help you put away savings. If you’re a good tenant, approach your landlord about lowering your rent. If that doesn’t work, consider downsizing to a smaller, cheaper apartment, and put the money you save directly into your savings.
2. Shop around to reduce major monthly expenses. If it’s been a while since you checked rates for your car insurance, renter’s insurance, health insurance, cable, internet or cell phone plan, now is the time to look into those costs. You may be able to save hundreds, or even thousands, of dollars by making modifications to some of these contracts.
3. Check out your IRA. First-time home buyers can cash out up to $10,000 from an IRA without having to pay the standard 10 percent early withdrawal fee. If you’ve been saving in an IRA, check your balance, and consider cashing out part of the money to put toward your down payment. You can find out more about the rules for this type of withdrawal at IRS.gov.
4. Look into state and local home-buying programs. Check to see if your state, county or local government operates any programs for first-time home buyers. Some programs offer housing discounts, while others may provide down payment loans or grants or tax credits.
5. Set up a garage sale. It probably won’t be enough to fund your entire down payment, but garage sale profits can get you started. However, you may be able to earn more from your big-ticket items by listing them on eBay or Craigslist.
6. Monitor your spending habits online. Do you usually wonder where your earnings have gone at the end of every month? Cut back on some luxuries and deposit what you would have spent (say, on a new jacket, a meal or that morning latte) into your savings account instead. Online tools such as Mint.com, SpringCoin.com and PearBudget.com can help you manage and track your spending to save more on everyday expenses.
7. Take up a part-time job. Getting a side job is the perfect way to generate extra income that you can save exclusively for your down payment. Consider freelancing in your field outside of work; you may be surprised how much you can boost your earnings with a few hours of work each week.
8. Refinance debts. Refinancing doesn’t apply solely to mortgage loans. In fact, you can refinance just about any debt, from credit cards by using balance transfers, to car loans by taking out a lower interest auto loan through a new lender.
9. Cut back on student loan payments. If you’re drowning in student loan debt, you may be able to scale back on your student loan payments – especially if you have government-backed loans. Talk to your lender about repayment options, including income-based repayment plans. Adjusting a repayment plan could substantially lower your monthly student loan payments, giving you more flexibility to save for a down payment.
10. Keep track of your progress. It’s important to follow your progress toward being able to afford the down payment. Consider posting a savings graph on your fridge. Keeping your progress in front of you can help boost your motivation, even when it’s tough to save extra money.
The new year will serve as a great opportunity to design a 2014 savings and budget plan for your dream house!