With fixed mortgage payments and a real estate market more stable than it’s been in years, now is a good time to buy a home. Whether or not it’s your fist foray into home ownership, your biggest challenge may be coming up with a down payment. Here we offer you some strategies for saving up the down payment for your dream home:
Consider cutting back
If you’re renting, reducing your rent payment may be your best opportunity for finding some serious savings opportunities. It’s not uncommon for rent to take up more than 30 percent of your take-home income. You can start by trying to negotiate a better rate with you landlord or downsizing to a smaller place. The goal should be shedding 25-30 percent from your rent costs to save toward a down payment on a home.
If it makes sense for you to have a roommate, sharing expenses can can be a great way to save money. It’s temporary, and in today’s tight economy, the percentage of adults living with someone other than a spouse or partner continues to rise.
Stash that tax refund
The average tax refund in 2015 is expected to be almost $3,300. It’s easy to have that windfall spent before it even arrives, but here is a great opportunity to squirrel it away to your home down payment fund.
Automatic savings plan
Ask your employer’s payroll department to deduct a fixed amount from your paycheck each pay period and deposit it into a savings account earmarked for your down payment. Start with a small amount; you may not even notice a 2 percent reduction in your spendable income, and it will add up quickly.
Reconsider your 401(k) contribution (temporarily)
If you are already contributing 6 percent (the maximum allowed) to your 401(k), consider temporarily stopping and allocating additional cash toward your new home’s down payment in a separate, after-tax account.
Ask for help from Family and friends
Gift funds for a house down payment coming from relatives or friends are not uncommon. In fact, according to the National Association of Realtors, 27 percent of first-time buyers received gift funds from a relative or friend in 2013 to apply toward a down payment, up from 24 percent in 2012 and 22 percent in 2009.
According to the 2015 annual gift tax exclusion law, anyone can gift any other individual up $14,000 per year, tax-free. A married set of parents can each gift $14,000 to a single child for a total of $28,000, or a total of $56,000 to their married child and the child’s spouse—Mom writes a check for $14,000 to her daughter and a separate check for the same amount to her son-in-law, and then Dad does the same, for a total of four, $14,000 checks.
Now is the time to get started establishing your plan to save up a house down payment. Get creative, sell some belongings you don’t need or use and work at cutting back on unnecessary expenses. Happy house hunting!
Photo: courtesy of featherthenest.com