You want your own backyard. A place for you and your spouse to play fetch with your new puppy — and someday soon make lasting memories with your first child! A couple of bedrooms and a couple of baths, all in a nice neighborhood. Right now it may all seem like a distant dream but with a solid savings plan you may be closer to that backyard barbecue than you think. Here are five tips to help you get to that housewarming faster.
It may take less than you thinkIt used to be common for lenders to require as much as a 20% down payment to qualify for a mortgage, but these days it can be much less. You may only have to come up with 3% in order to buy a home!
Of course, minimal down payments may affect the interest rate you receive — and you’ll have to pay private mortgage insurance, which guarantees the lender gets paid if you are forced to default. And a lower down payment means a higher monthly note, though with a good deal made on your must-have house, the “end may justify the means,” as they say.
Here is a handy calculator that can help you design a savings plan. It’s also a good idea to know what you can afford first, pre-qualify for a loan — and then go home shopping!
Hide the set asideAfter you seek out and snag a good savings account, arrange for automatic drafts from your paycheck or checking account each month. Not just a random amount, but a regular sum that meets your “down and distance.” That’s the down payment (and closing costs) you’ll need saved within the timeframe you’ve set to buy a home.
With these funds invisibly zipping between accounts, you won’t be tempted to touch them before you reach your savings goal.
Consider tapping retirement accountsThis is one idea you’ll definitely want to talk over with your trusted financial advisor, but the IRS allows first-time homebuyers to withdraw up to $10,000 from their Individual Retirement Account (IRA) penalty free. You will surely want to consider the tax consequences of such a withdrawal, as well as the impact to your future retirement plans.
While your employer-sponsored 401(k) doesn’t qualify for this penalty-free withdrawal, some plans offer participant loans with the interest paid credited right back to your account. Again, this is a tactic that requires due consideration.
Explore government assistanceMany states, including Florida, have assistance programs that can offer advice, information and even financial assistance for first-time homeowners. Some federal programs can also offer help with a down payment, and of course military service members who qualify for Veterans Administration (VA) loans aren’t required to have a down payment.
Be a “first time buyer” again!Here’s the ultimate do-over. If it’s been more than three years since you’ve had a mortgage or owned a home, you may still qualify for the benefits of a TFCU first-time home buyer mortgage!
You may also explore gifts from family to help jump-start your down payment savings program. But the surest way to save up for the down payment is to aim high, keep expenses low, and don’t quit until you fire up the barbecue pit.
Hal Bundick, NerdWallet