All Financial Wisdom

Saving up for Down Payment

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Do you have an empty wallet because you're saving so much?

Saving up for a down payment can be a challenging thing to do.  When you are looking for a modest home, you typically have to save somewhere between 10-20% of the cost of the home for the down payment.  There are closing costs to be worried about as well.  Those are typically a couple grand.  There's several methods and strategies that might help you get that down payment sooner

Automate deposits

Every time your paycheck is deposited, you can automate the transferring of a couple hundred dollars to another account.  That other account can be a higher interest savings account, or just a hidden savings account.  A lot of financial gurus recommend this method.

Investing deposits

Every bit of cash you would like to put towards your down payment, place it in a taxable investment account.  Purchase safe investments like bonds, index ETFs or even diverse funds like Vanguard's LifeStrategy funds. These funds provide a mix of diversification that can provide growth, diversification, automatic rebalancing, and security to you.

Dip into Retirement

If used carefully, you can withdraw some of your stored money and place it towards your down payment without paying an early withdrawal penalty of 10%.  You can withdraw $10,000 of earnings from your Roth IRA if it is 5 years or older.  For a Traditional IRA, you can also withdraw $10,000 but you have to pay regular income tax on it, since this has never been taxed on.

Look at alternative methods

There are grants, loans, and special programs that can provide you money for your down payment or allow you to require less for a down payment.  There are FHA loans that only require you to have 3% down. VA loans can be provided with 0% down for a active duty service member or veteran.  Check your state or local authorities for other possibilities.

These are just some simple ways to build up a down payment for a property.  

 

Great References:

http://www.moneycrashers.com/401k-ira-withdrawal-down-payment-house/

http://www.fha.com/

http://www.benefits.va.gov/homeloans/

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