Do you have your eye on that four bedroom house with a white picket fence and a bonus room? You've compared interest rates and monthly payments, and the only thing holding you back from buying your dream home is the large down payment required. Well, here are a few strategies you should consider for saving up for that down payment.
Step 1 - Shop around for loans that require lower initial down payments.
Not all loans require that customers have a 20% down payment. Some loans require only 5%, while others don't require a down payment at all. However, these loans usually charge a higher interest rate or require private mortgage insurance (PMI), which would increase the monthly payments. Make sure you do your homework by matching the best rates with the down payment requirement and monthly payments that work best for you.
Step 2 - Be disciplined in your savings.
Saving a large amount of money can take time, but if you are consistent in your approach it can be done before you know it. A great way to do this is by setting up an automatic savings plan that takes a set amount of money from your checking account and transfers it to your savings account. Make sure you shop around to get the best savings rate possible. In addition, depending on when you will need the money, you may want to look into investing in a short-term Certificate of Deposit or a High-Rate Money Market or Savings Account.
Step 3 - Know your options.
Another option would be looking into your 401K plan. Many companies allow you to borrow against your 401K, and if you have enough in your 401K plan, this can be the perfect option for getting your down payment. The best thing about this option is that since you are, in effect, borrowing from yourself, all the loan repayments and interest payments go back into your 401K account. Some plans also allow you to withdraw the money if you are purchasing your first primary home.
So, check all your options, save wisely and go buy that home you have always wanted.
Source: Informa Research Services
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