Saving up for a Down Payment on a Home
Posted on August 05 By Francine Huff
For many people, getting together enough of a down payment to buy a home is a daunting task. Most Americans say the down payment and closing costs are the biggest obstacles to buying a home, according to a recent National Association of Realtors survey. The annual survey also found that 80% of Americans say job layoffs and unemployment are barriers to home ownership.
These days many lenders want borrowers to have a 20% down payment. So what can you do to find enough money for a down payment?
- Use the first-time homebuyer tax credit if you haven't owned a home in at least three years. Monetizing the $8,000 first-time buyer tax credit for down payment or closing costs on FHA-insured mortgages is a positive first step," said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. "Our hope is that the tax credit will be extended and expanded to all home buyers and will help bring stability to the housing market and enable more Americans to achieve the dream of homeownership."
- Determine exactly how much house you can afford on your current income. This will require looking at your current debts and expenses and factoring in any savings you've already accumulated. Once you know far your income will go toward monthly housing costs, you'll be able to set a target for how much of a down payment you need.
- See if you qualify for an FHA mortgage. These loans are available for down payments as low as 3.5%. FHA loans also have low closing costs and less stringent credit qualifications, although you will have to document your income. There also are no prepayment penalties with FHA loans.
- Cut out some of the goodies. That means making some tough choices about your spending habits. If necessary, get help with a debt reduction plan so you'll have more money to sock away in savings.
There's no doubt that for many people saving up a large sum of money is practically impossible. But by making some smart choices you can build up enough of a savings over time to put toward a down payment on a home.
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her Web sites, www.Huffwrites.com and http://supersavvyspender.blogspot.com/.
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