You’d love to buy, but you have no idea how to get a down payment on a house! It seems so impossible that you haven’t even started a savings plan. It is far more satisfying to buy a triple shot macchiato, extra hot, right?
But… is it crazy to think you might start saving if you just had a plan? If you knew you would get a house as a result of your caffeine sacrifice?
Matt Crisafulli is a talented fee-only financial planner and I asked him to share some financial wisdom. He has helped people just like yourself achieve their financial goals- including how to get money for a down payment on a house.
Listen in as Matt shares advice that will get you well on your way.
SHOW NOTES
How to get a down payment on a house?
Eat Your Vegetables
The stuff your parents and grandparents have always told you. We know that eating our vegetables will make us strong and healthy, but they are not as tasty as dessert! That’s why Mom made you eat your broccoli first, right?
Saving money is exactly the same. Putting aside a set amount each paycheck is not as fun as getting that macchiato, but doing so will make us strong and healthy.
Automate the Savings Process
It’s a long process where you prepare to buy a home. You need to save excess income or sacrificing life’s little luxuries to have excess income. Automating the process – asking your employer to take a little out before you even get your paycheck – will build your down payment surprisingly well.
Automatic savings keep it out of sight, out of mind
Defer excess income (bonus, raises, gifts, etc) get that into a savings account instead of your checking account where you are tempted to spend it.
Even a small amount will compound over time and turn into something big!
Make sure you save in a higher interest-paying account!
Most people have their savings account at the same institution as their checking account. They will get a much higher interest rate at a Capital One, Ally or Discover (online bank)
Benjamin Franklin said, “Money makes money and the money that money makes, makes more money” perfectly describes the power of compounding
Read the book, “The Compound Effect” by Darren Hardy
Matt told the story of one of his clients who managed to save 2,000 a month by making sacrifices like living in a small apartment or not getting expensive coffee or meals out. The interest they made from their savings was between $12,000 – $16,000! That is additional for doing nothing more than placing your savings in the right account.
Buying a home is not just a financial decision. It is a life decision, so consider doing things that are counter-intuitive. With that said, here are some little known things that can get money for a down payment on a house.
Withdraw from your IRA
You can “borrow” without paying the 10% early withdrawal penalty to ge money for a down payment on a house. You do this as long as you have not bought a home in the last two years. This is a per person limit, so if you are married you could each do this for $20,000.
Borrow from your 401k
If you borrow from your 401k at very favorable rates and stretch your payments over 30 years (depending on the plan). Remember- many times your employer is also contributing to the 401k, so this is an excellent benefit. Caveat: you can only take is $50,000 or half of the vested balance or half of your vested balance, which ever is less
Bank of Mom and Dad
Mom and Dad want to help their children, but you can make them feel better by including a third party company that can track the loan for you. They can track payments, tax reporting and interest calculations. This makes the whole thing a bit more arm’s length and adds an extra layer of authority.
