If you are one of the millions of people who are currently trying to amass enough money to make a down payment on a home, it pays to know about the various strategies for facing this major challenge. Experts say there is no ideal way to accumulate the cash for down payments because every person's situation is different. There are, however, several common ways that financially stable people use to save on a down payment for a new home. There are a few pitfalls to avoid as well.
Here's a quick look at the three most common ways people gather the resources needed to purchase their ‘forever’ home:
Cut Current Expenses
The oldest and one of the most effective ways to save for a down payment is to chop your monthly expenses as low as you can. This means you'll have to be ready for some personal sacrifice. The good news is that many people are able to seriously cut back for a few years and come up with a down payment in short order.
How can you cut expenses? Consider eating out less, spending less on groceries by joining a shopping club, not "leaking" money out at convenience stores and restaurant lunches at work. Pack your lunch. Eat out only once per month. Don't socialize at sports bars or restaurants. Shop at discount stores for basic clothing items. Quite simply, don't take on any new debt! The cardinal rule is to always spend less than you earn. Managing your expenses is a critical task to accomplish. Budgeting tools such as QuickBooks Cloud Hosting on a Citrix Xendesktop VDI can help you effectively manage your household budgets and expenses.
Eliminate Other Types of Debt
Paying down other forms of debt and the accompanying interest payments can actually free up additional money you can put towards a down payment and the subsequent mortgage payments each month. You can take the fast or slow approach depending on your level of income. The theory is sound: when you pay off your car, student loans, medical debt, back taxes and other bills that have accumulated over the years, there will be enough money left over to build up a substantial down payment fund.
Look to Refinance
Another option is to refinance some of your debt in order to save a considerable amount each month to improve your down payment fund. No one should be forced to live with their current interest rate, so no matter which financial stage in life you’re at, whether it’s a personal loan, or you’re a parent seeking relief by refinancing Parent PLUS loans, every reduction in rate helps.
Get a Second Job
Another tried-and-true way to save for a down payment is to get a second job. When you’ve cut your budget to the bone, earning more is the only way to go. Even working a few hours extra each week can make the journey to a down payment a shorter one. Consider this, if you take a part-time job that pays $12 per hour at a local retail store and work 15 hours per week, you'll accumulate an after-tax nest egg of about $8,000 in one year.
Whether you are single or married, it's possible to take on a second job and quickly build up your down payment fund. Many people who opt for this approach search for local, nearby jobs that don't call for long commutes or major schedule changes. A survey by a consumer counseling agency revealed that the most common industries for second jobs are retail, delivery and security.