As interest rates on mortgages continue to fall and more houses are being put on the market, it’s tempting to run out and buy a home. If the only thing standing between you and the dream of home ownership is your downpayment, it’s time to get serious and start finding ways to fund your downpayment.
Reduce Debt. If you have credit cards and other outstanding accounts, it’s a good idea to pay them off or at least reduce them considerably before you attempt to save money for a downpayment. If you don’t pay off your debt, the interest you pay on the money you owe is likely to be more than the interest you are earning on any savings- so you aren’t really getting anywhere! Pay off debt first, which will also free up more money to save consistently.
Use Your IRA. If you have been saving in an IRA, and are ready to purchase your first home – the law allows you to withdraw $10,000 from your IRA to use as the downpayment. If you use your IRA to help you come up with the downpayment on your new home, you won’t be paying a penalty for an early withdrawal. Keep in mind you will probably owe tax on the amount you withdraw (but depends on the type of IRA you have). The long-term return of residential real estate investing is probably worth a short-term tax bill, though.
401K Loan. If you’ve been contributing to a 401K plan, chances are you have the option of taking a loan from your 401K. If you choose this route to help you come up with money for your downpayment, you will be paying yourself back in the form of automatic payment deductions from your paycheck, and often with interest. The upside to this strategy is the money you pay yourself back and the interest is all going back into your 401K account, and helping you save for retirement despite taking a loan from your savings.
Increase Income. You can always get a second job to increase your income temporarily to help save money faster. Deposit everything you earn from a second job into an interest earning account, and resolve not to touch any of it. Designate the account as your downpayment fund, and watch it grow. You can also increase your income by selling unwanted and no longer needed items from around your home, on ebay or through yard sales.