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How to Save a Down Payment for a Home in 12 Months


So you think you're ready to buy a house? That's exciting! Of course, one major hurdle we all face is coming up with the down payment. Given that the U.S. median home price is around $235,000, 20% down calculates to $47,000! While saving that amount of money in a year might seem impossible, you have options. Here are some ideas to get your down payment account funded in 12 months.

Consider different loan types

Fortunately, not all loans require 20% down. If you qualify for certain loan types, your down payment could be well within reach already.

  • Federal Housing Administration (FHA) loans require only 3.5% down. FHA loans include a number of other attractive qualities for borrowers, especially first-time home buyers. 

  • Veterans Administration (VA) loans, available to eligible military members and veterans, have much smaller down payment requirements, sometimes even allowing borrowers to buy with zero down payment! 

Check for state and local government help

Many state and local governments offer down payment assistance to qualified home buyers, especially first-time buyers. It would be well worth your time to conduct an online search and make a few phone calls to find out what deals are available in the areas you're targeting.

Get down to business

Once you've figured out your best deal for a loan and whether you can expect any assistance from your state or local government, you'll know what you're up against for a savings goal. Let's face it, there are pretty much two (legal) ways to accumulate funds toward any goal: earning and saving.

Earn extra cash whenever possible

Assuming you already have the best full-time job you could score, here are a few ways to earn extra cash, all of which must be saved toward your down payment.

  • Take on side gigs. Use websites and mobile apps to find side jobs that suit your abilities and interests, such as providing ride shares, babysitting, tutoring, writing, web design, or dog walking.

  • Sell or rent items you aren't using. For example, if you have a spare room in your current home, rent it out. If you have items lying around the house that you don't need, list them for sale on craigslist or ebay. When you aren't using your car, rent it out on a car sharing site.

Save everywhere you can

To reach any aggressive savings goal, in addition to earning all the money you can, you must trim your expenses in every way possible. Track your current spending, set up a monthly budget, and find spare amounts to save. There are a number of apps available that can help you find spare cash to tuck away. Here are some ways to find new savings. Again, remember that every penny of these savings must go toward your down payment!

  • Cut out all expenses that are not completely necessary. Instead of paying for a gym membership, go for walks outside or follow free exercise videos online. Make meals at home in place of going out, invite friends over for drinks instead of paying at a bar, and make coffee at home instead of paying $5 at the coffee shop. Find free entertainment in place of paying to go to a movie.

  • Evaluate your living expenses. Move to a cheaper apartment, move in with friends or family, or live with roommates to trim your household expenses substantially. Reduce your energy usage to save on utility bills.

  • Use items you already have and avoid buying new. If your car, cell phone, and computer are in good working order, resist the impulse to upgrade and pocket what you would have spent.

  • Trim your transportation costs. If you have an expensive car, especially if it still requires a hefty loan payment, look into selling it and buying a cheaper used car. Talk to friends and coworkers to see if anybody would want to carpool to work, or check if public transportation would save you commuting costs.

  • Shop around for insurance, cell phone, cable, and internet providers to see if you can do better by switching or you could cancel some services entirely. Also, talk to friends, family, and neighbors about combining your phones onto a shared multi-line plan or sharing wireless internet.

  • Set aside every raise, bonus, gift, tax return, and extra money you receive, including little payments like credit card reward checks.

  • Make necessary purchases, such as groceries, with cash when possible and practical. Studies show that you'll spend less when paying with cash than if you pay with credit cards, and you can add to your savings quickly by putting all change you receive toward your down payment.

Put your funds out of easy reach

If you have just a year to save up what you need, you probably don't have a long enough timeline to put your money in stocks or anything else that includes any risk. Your best bet is a savings account online or through a credit union, which often will offer a bit better interest than regular banks. Also, set up your account so that you don't have an ATM card for it and cannot remove money quickly or easily. In other words, make it difficult to sabotage your savings.

Desperate times call for desperate measures

I hesitate to suggest this path because it can cause problems down the road; however, if you're a first-time home buyer and you're sure you've found the right house, there may be a quick way to gather significant funds. 

  • Every IRA owner is able to withdraw $10,000 from his or her IRA to use in purchasing a house. Note that for married couples, this option provides $20,000 in down payment funds. 

  • If you withdraw funds from a Roth IRA that has been in existence for five years or more, you will not pay income tax on the withdrawal. If you withdraw from a regular IRA, you'll pay income tax.

  • Most 401(k) plans also allow loans for home buying, but you'll be charged interest on that loan. Also, this type of loan comes with risk, because if you don't pay back the loan plus interest on schedule, or if you lose your job before satisfying the loan repayment, you'll pay income tax plus a 10% penalty for early funds withdrawal. However, many 401(k) plans allow borrowers to withdraw half their balance, so depending on your balance, this option may provide you with the biggest sum.

Related reading: What to Expect When Closing on Your New Home

Just like any large goal, saving for your down payment seems daunting at first. Fortunately, it's a matter of patience and discipline above all. Use these tips, stick to your plan, and remember your end goal will be worth the temporary sacrifices. Good luck on your house hunt!

helpful tips for first time homebuyers


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