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Many people still hold homeownership as an important benchmark for financial success and stability. In fact, although attitudes towards homeownership ebb and flow by generation – ownership rates seemingly exploding one minute and plateauing the next – most of the basics behind homeownership and, more specifically, financing that ownership, have remained in place for decades.
Despite exotic new forms of mortgages entering the marketplace all the time, most people still see the traditional fixed-rate mortgage and accompanying 20% down payment as the gold standard. However, quickly saving an adequate amount of money to make a down payment can be particularly challenging. Therefore, a handful of best practices can come in handy for anyone trying to build wealth from scratch and bankroll their homeownership dreams.
Most people have their paychecks direct deposited into their account to pay bills and accumulate savings. Take advantage of this convenience by opening a separate savings account and having a portion of your paychecks direct deposited into that account.
Obviously, saving for a 20% down payment is going to require certain sacrifices unless you hit the lottery or are left money by a wealthy relative. Assuming neither of those will be the case, keep your eye on the prize and make some cutbacks that will help you save even more by spending less. Rather than taking a big vacation, use an occasional staycation as a means of unwinding. Similarly, eat at home more often and don’t make unnecessary purchases that aren’t necessities to your lifestyle.
When saving for a down payment, cash flow is of utmost importance. More precisely, reducing expenses frees up additional income available for savings. Take a look at your personal balance sheet and find any sources of debt where you’re paying particularly high-interest rates. Afterward, research the best debt consolidation techniques or accelerate your payments to ease your cash flow as much and as quickly as possible.
The federal government along with many municipalities – and even some private organizations – offer down payment assistance to those that qualify. Start researching such programs through both federal and county resources to find those that might help defray a portion of the cost of your required down payment.
While not ideal, many retirement accounts have provisions that allow particular homebuyers to access retirement assets without penalty. If interested in using your retirement accounts for a down payment, however, remember that money withdrawn from them, even if for a good cause, is making your retirement goals more difficult to reach. Read up on the pros and cons of using retirement funds for a down payment.