The American Dream of buying your home is not far out of reach. If you start with making a budget, do a financial check-up, and develop some strategies for savings, you will then be one-step closer to buying your dream home! Although, "your cost of living might be high, your debt obligations are through the roof, and/or there are insufficient funds after you have paid your ongoing expenses" there are still several ways to accumulate cash for a down payment. Buying your next home is NOT impossible. Below are a few steps and strategies in implementing a budget and achievable down payments:
Budget to Buy a Home
• On an Excel sheet, Word document, or even on a piece of paper, document your monthly income, on-going monthly expenses, and take the difference of those two as that will be your monthly savings ("cash flow").
• If possible, if you have an overabundance of debt on high-interest rate credit cards, try to consolidate and move your balances to lower interest cards (i.e., promotional 0% credit card for a certain term). Then plan on spending a year paying down as much of that debt as possible.
• Alternatively, with auto-loan rates still at such historical lows, request from a lender if you can pull out cash and refinance your automobile with them (if there is equity). This will help you fix your interest rate, term, and payment. Additionally, if possible, if you can extend your repayment term in your cash-out refinance, you will be consolidate your debt to a lower monthly payment; which, this will help you improve your front-end and back-end Debt-to-Income (DTI) ratios.
• Identify your long-term financial goals: owning a house may be one, saving enough for retirement may be another.
• Make a home-buying savings plan: open a savings account just for this purpose and use it religiously, even if you just put aside $20 a week it all add's up!
• Assess other sources of possible down payment funds, such as an Individual Retirement Account (IRA): first-time buyers still have access to $10,000 of these funds penalty-free. (Consult with a Tax Accountant, or CPA)
• Cut back on non-essential spending: your friends and relatives will understand that you cannot spend $20 going to dinner and the movies if you say you are saving to buy a house. Your children will understand, too. In fact, saving to buy a house can become a family activity.
• Make saving for a house fun: chart your progress on paper and post it somewhere where you can remind yourself of your goal.
20 Ways to Raise a Down Payment
1. Ask your parents, other relatives or friends for help. If they cannot gift or loan any money, perhaps they will co-sign the loan. Many lenders will allow all of the down payment to come from your parents if they co-sign your mortgage loan. This does mean that your parents’ names will go on the title of the home. They will also be jointly responsible for mortgage payments. But, you may eventually be able to refinance the loan in only your name after you have accumulated some equity in the property or improved your financial situation. (Consult with a Real Estate Attorney)
2. Sell (or borrow against) other real estates you may own.
3. Sell securities you might own, or borrow against them through a loan from the stock brokerage.
4. Withdraw money from your IRA. New tax laws make this more attractive, especially if you’re a first-time buyer or have not owned a home for the past few years.
5. Sell collectibles or heirlooms you own.
6. Cash in (or borrow against) the built-up value of any life insurance your might own.
7. Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent
9. Ask for help from your mosque, church, synagogue or other nonprofit organization. (Fannie Mae, the big secondary mortgage market entity, has a “3/2” loan program that allows you to make a 3 percent down payment if a bona-fide nonprofit puts down the other 2 percent).
9. Sell a boat or second vehicle you own and use the cash for the down payment.
10. Get a second job. It’ll help you raise cash, and the extra income will improve your chances of qualifying for a loan. You can quit later if you would like.
11. Look for an investment partner who’ll put up some or all of the cash in an equity-sharing partnership. You make the monthly payments and the two of you split the eventual resale profits.
12. Change the withholding taxes on your salary in anticipation of higher deductions when you get a mortgage. Your take-home pay will increase, giving you more funds to put toward a down payment.
13. Look for loan programs (VA, FHA, etc.) that require little down to no down, and low to no Private Mortgage Insurance (PMI).
14. Use a lease/option that lets you rent the house now and buy it after you’ve saved up some extra cash. Alternatively, rather than buying out the owner’s equity, ask the seller to carry back a second mortgage for an equal amount. Result: You buy the home with nothing down.
15. Pawn something you own and use the proceeds for a down payment. You can get the item back later after you’ve moved in and can afford to pay the pawnbroker back. Pawnbrokers rarely report their loans to credit bureaus.
16. Refinance your car or other vehicles and add the proceeds to your down payment.
17. Offer something other than cash (a car, boat, collectibles, etc.) to the seller in lieu of a cash down
18. Offer your services/expertise to the seller in lieu of a down payment. Some examples include $10,000 worth of auto services if you’re a mechanic, dental work if you’re a dentist, typing services if you’re a clerk, artwork if you’re an artist or legal work if you’re an attorney.
19. Look for foreclosure properties that require little or no down payment. Some lenders and government agencies will let you buy a foreclosure with no down payment if your credit is good, they’re anxious to get the home occupied or you have skills you can use (carpentry, landscaping or merely painting) that can be used to increase the home’s value.
20. Sell crafts you make, or services like babysitting or lawn work, for extra cash.
With the additional revenue and/or savings, use that money to save to buy your next home. Once you buy a home, do not give up your newfound savings discipline. I would recommend to start an emergency reserve fund. You may need it for home repairs or improvements. Also, remember, every day you own your home, you are also building equity - this is a form of savings, too.
Let of one of own REALTORS®, at Moaddab Realty, help you customize your next home purchase into a concrete, actionable goal. Please contact us at: Info@MoaddabRealty.com or (949) 424-7282 so we may further assist you in getting you one step closer to your dream home!
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