One of the most important steps in buying a house is saving enough money for a down payment and closing costs. Don’t believe what you read on some websites – there are mortgage programs that DON’T require you to put down 20%. (If you don’t believe me, we clearly need to talk!) It is a good thing that there are programs which require less than 20% because even a 3% down payment with a 97% mortgage will still total thousands of dollars. This blog post is to talk about the many ways to come up with the money.

Seek Government Help

The federal government and many states offer down payment assistance programs. Rules and amounts available depend on location, the size of the loan and the buyer’s financial circumstances. For instance, DC has an awesome Open Doors Program and a Mortgage Certificate Program. Stay tuned for more information about these programs and others that can get you into the home of your dreams for an affordable loan and a great down payment! 

Beef up Your Savings Account

A small amount of money, if set aside consistently each time you get paid, can add up over time. The key is to transfer money to a savings account no matter what. If you don’t have the discipline to do that yourself, set up automatic transfers.

$50 a pay period means skipping 12 grande lattes at Starbucks in a 2 week period – and that is more than $1200 in a year in savings. Face it – Dunkin Donuts lattes are almost as good as Starbucks when you consider that they bring a house or a condo along with them! 

If you expect to get a tax refund or year-end bonus, resolve to use it for a down payment. You can use part of it to reward yourself, but focus on your long-term goal of owning a home. That is a real reward that will give you joy for many years! 

Pay off Debt

If you have credit card balances with high interest rates, you are probably paying thousands of dollars per year in interest. That is money that could be used to fund a down payment on a home. Create a plan to pay off your credit card bills as soon as possible. That could mean cutting expenses, working overtime, getting a second job, paying a little more toward your credit card bills each month, consolidating your balances, or taking out a loan with a lower interest rate. Keep your eye out for those new credit card programs that allow you to switch your card balances for a year (or longer) of zero interest payments. That can add up to thousands of dollars in savings! 

Once you have eliminated your debt and interest payments, the money you had been putting toward those bills each month can be devoted to saving for a down payment. Paying off credit card debt can also improve your credit score and help you get a lower interest rate when you apply for a mortgage.

Tap Into Retirement Funds

In some cases, you might be able to withdraw money from an IRA to fund a down payment on a house. Depending on the type of account you have, you might have to pay taxes and penalties. If you have a 401(k), you can borrow money to buy a house, but you will have to pay it back with interest. Any money that you withdraw from your retirement savings won’t be able to accrue interest, so think carefully before choosing one of these options, especially if you’re getting close to retirement age. This is one of those times when you need to talk to an accountant or at least your HR office – but using your retirement funds when you are younger to buy a home – which will build equity for the next 30 years – may (possibly) be a good decision!

Figure out a Strategy

Saving money for a down payment can feel overwhelming. It may take several years, depending on your price range and financial circumstances. Explore your options and come up with a plan, preferably one that combines a variety of approaches. Have a vision of what your future looks like. Believe that it will come true. Then go out and get it! 

Give us a call at 240-401-5577 for coffee and advice on how to make home buying a reality for you!

This article is intended for informational purposes only and should not be construed as professional or legal advice.

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