As the housing market recovers, the price of buying a home becomes a challenge for many. In just a year, we have seen a significant increase in the real estate market. National Association of Realtors claims that the median price for a single-family home is now at $203,500. Most mortgages require a 20% down payment. In addition, mortgage rates are starting to rise. That can be quite hefty for most of us.
It is quite hard to save money for down payment to your desired home. Still, there are some ways on how to guarantee your next down payment.
Tips On How To Save For A Down Payment
Look Into Loan Options - As mentioned above, the usual mortgage requires a 20% down payment of the home’s purchase price. Actually, there is an even lower option. Federal Housing Administration (FHA) loans only require 3.5 percent down payment. The government is supporting most of the closing costs and other fees. If you have FHA-insured loans then lenders are more lenient when it comes to loan qualification requirements. For those who have low credit scores then FHA loans can be the perfect solution.
Open A Savings Account Solely For Down Payment Purposes - To truly save for your down payment, you will need to open a separate account solely intended for that down payment. You also have an option to automatically deduct a certain amount from your monthly paycheck that will be deposited directly to that account. When your savings have reached a certain amount, you can transfer it to certificate of deposit (CD) or low-risk money market.
Trim And Save - Try looking into your monthly budget. You might be spending more than you actually need. Going on shopping sprees? This needs to stop, starting now. You have to focus and visualize for your down payment needs. Shop around for lower rates for your car loan, maybe you can opt for another lender. If you are currently living in an apartment, maybe it is time to transfer to a more affordable one.
Use A Portion Of Your Retirement Fund - This should not be your first option. You can only do this if you no other alternatives. First of all, if you will be using money from your retirement fun you have to know that there will be withdrawal penalty fees and taxes. However, first-time homebuyers can withdraw $10,000 without penalty from individual retirement accounts (IRA). 401(k) account lets you borrow up to 50% of your vested accounts but no more than $50,000. Any funds borrowed from retirement funds are subject to interest and must be repaid within 5 years.
With these options, you now have a guaranteed way to save up for a down payment for a home that you truly desire.