Even though it’s possible to purchase a home without a down payment, it’s much better to make a down payment (be it large or small). In this way, you will save money in the long run. But, how can one build a down payment?
- Reduce Expenses
Let’s be clear – there are things that people need every month like food and gas, but there are also things that they don’t need at the moment like a 4K Ultra HD TV, an expensive second car etc. So, if you are in a process of buying a new home, it’s better to reduce expenses and stick to the essentials.
- Pay with Cash
Another great idea is to pay things with cash. Forget about your credit card for a while and avoid buying things that you can’t afford at the moment. This practice will save you a lot of money that you can use for a down payment.
- Talk to Relatives
You can always rely on your parents and siblings when you need money, but only if they have extra money to borrow. A personal loan is a better option than a bank loan and it won’t hurt to ask them. If they don’t have enough money, maybe they can co-sign a mortgage.
- Borrow against Life Insurance
This is a quick and simple way to get cash. These policy loans don’t require any background checks and there’s no approval process because you are actually borrowing from yourself. Check the policy and see whether you are free to do this.
- Borrow against Equity
Home equity loans are here to let real estate owners borrow against their home’s value. You can get a significant amount of money in this way and it’s much easier to qualify for this kind of loan because the borrower gets a valuable security. This is a specific kind of second mortgage which means that you should be careful.
- Borrow from IRA or 401K
Although taking money from your retirement account before you actually retire seems like a tricky business, there are times when borrowing from IRA or 401K may be the only solution. Make some calculations and see whether you can cover these cuts in the near future. In any case, this is another way to build a strong down payment fast.
- Sell some Personal Items
Do you have a boat? Or maybe you have a second car? You may not consider these things as luxurious items, but if you don’t have enough money for a solid down payment they are acting as luxurious items. Consider selling some of your personal items to get cash.
- Explore FHA & VA Loans
These are government mortgage loan solutions which are often used by first-time homebuyers. They are easier to obtain and usually have lower interest rates. You still have to meet some conditions to get them.
In addition, you can consider direct deposit to savings accounts, pay down all your credit cards and few other things that can help you build a down payment.