Don’t Let Down Payments Get You Down
Don’t Let Down Payments Get You Down
So you’re sick of your loud neighbors in the apartment next door partying into the early morning, not picking up after their dogs and overloading the communal dumpster. You’re tired of the blind spot at the end of your driveway threatening an early morning collision. You’re fed up with the pest issues in your building and you pine for the privacy, comfort and security of your own home.
Unfortunately, what you want and what your bank account can provide aren’t always the same thing. So there it is, the obstacle to many would-be homebuyers— how do you save for a down payment while balancing your living expenses?
Here’s a few tips that could help you save for a down payment and secure the future you want.
1. Ask for a raise or get a new job. More often than not, employers consider it the duty of the employee to ask for a raise, so don’t be bashful if you think you deserve to make more. Tell them you’re trying to put down roots and create a more sustainable living arrangement; that a raise would help you save for a down payment and could ease your financial stress if it’s large enough to lower your mortgage payments.
If they say no, it may be time to consider changing jobs. Money is not the only factor that weighs on the decision to find new work, but if you’re in this situation it may be a question worth asking. Remember: employment history is taken into account when applying for a home loan, but so is income.
2. Save your tax refunds. Many Americans already think of their tax refunds as a sort of forced savings plan, but why should you need to drain your “savings account” after only a year? Hold onto those payments for a few years. You may be surprised how quickly they could begin to add up, especially if you’re in a household with multiple adults qualifying for refunds.
3. Save automatically. Maybe you make enough money and it’s the saving part you’re not so good at. You’d be far from alone with 57 percent of Americans reporting less than $1,000 in their savings accounts, according to GOBankingRates. There’s no shortage of guides online telling you how to save, with some even claiming half of your income should go straight into your piggy bank. But if you’re reading these tips, chances are that’s an untenable arrangement.
Rather, consider what percentage of your paycheck you could forego. 10 percent? 5 percent? Even 2 percent? Once you have that number, set up a direct deposit into your savings account and leave it alone. If you can hold onto your self-discipline, you’ll be amazed how quickly it’ll accumulate, and all without you consciously saving a penny. For example, if you earned $50,000 per year after taxes and saved just 2 percent (about $42) per paycheck, you’d end up with about $1,000 by year’s end.
4. Dip into that IRA or 401k. This one can be a little controversial, but if you’ve got time to replenish what you took out, consider dipping into your retirement plan. Many plans offer low-to-no penalties on early withdrawals for buying a home. Some plans even allow you to borrow against your savings. Look into your plan’s options with your tax preparer or CPA.
5. Consider low-to-no down payment options. If you think not being able to afford a down payment is unique to you, think again. The housing industry is absolutely bursting with different loan products to fit a whole range of circumstances. Many programs allow special considerations for first-time home buyers, including reducing down payments or doing away with them altogether. But nothing in life is free and you’ll likely be paying for that convenience in another way, so it’s important to talk to a qualified loan officer who can guide you through the different programs and identify those that best fit your unique needs.
For many working to put food on the table and gas in the tank, home ownership can seem a distant fantasy. But as demonstrated, if you look for ways here and there to save, in short order you’ll be in the market for your home sweet home.
Written by Ian Hanner