Tips to Save and Earn for a Down Payment

Are you dreaming of buying your very own house, but don't know how to save money for a down payment? Don't let these expenses deter you from your dream! Check the infographic to find effective saving and earning strategies that can help you come up with the required amount of money quickly.

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How to Quickly Save and Earn for a Down Payment

Buying a house is part of the American Dream. You own a little piece of property to build your personal wealth, and you have a place to raise your family. If you're lucky, your home can grow significantly in value over the years, and you can leave a valuable estate to your children, who can then leave it to their children, and so on.

Before you can buy the home of your dreams, you'll need to come up with a down payment in order to qualify for the loan. The bigger the down payment, the better the loan terms you can get, including a lower interest rate and freedom from purchasing private mortgage insurance, which can cost 0.3 percent to 1.5 percent the value of the mortgage.

Some loans require a specific down payment. For example, the Federal Housing Administration provides loans for first-time home buyers that require a down payment of 3.5 percent. The median home cost in the United States is $212,400, and a 3.5 percent deposit on that price is $7,434, which is no small sum. FHA loans also require borrowers to carry private mortgage insurance, which can add hundreds of dollars to the monthly payment.

Traditionally, lenders have asked for a 20 percent deposit for the best loan terms, which is $42,480 for that same median price. You may feel tempted to pull that money from a retirement account like a 401(k) or IRA, but you might have to pay penalties and significant taxes on the sum. You'll also be taking money out of needed retirement accounts, and you will ultimately have to pay it back (unless you want to pay even more penalties).

Coming up with such a large sum on your own may be daunting, but it can be done if you plan well and stick to your plan. Here are a few things you can do to quickly save and earn for a down payment for your dream home:

Downsize Your Living Situation

If you currently live in a two-bedroom apartment, move into a one-bedroom apartment. You could save 10 percent to 20 percent on rent, which could be a few hundred dollars per month, depending on where you live. Say your rent drops from $800 a month to $500 a month, you could be putting $300 per month into savings.

If you are able to, moving back in with your parents could help you save the entire $800 a month to put toward your down payment. You'll just have to have parents who will let you live rent-free for that time -- and you'll also have to have the patience to live with your parents again.

Take On a Roommate

You don't have to move into a smaller space to cut your rent. Just take on a roommate. Rent out that second room and save the money you get for your down payment. If you rent a home, consider renting out a spare room or a basement apartment.

Sell Your Car

Many couples carry the expense of two cars even though they could get along with sharing a car if they made a few changes. Sell your car and put the money toward your down payment. Or trade in your new car and use the value to buy a quality used car outright. Then you can put the money you spent on your monthly car payment toward your down payment.

Work More

The easiest way to make more money is to work more. See if you can take on a little over time at work. If you can't, take on a part-time job in the evenings and on the weekends.

Explore other options for work, as well, such as turning your hobby into pay. Offer music lessons in your home. Sell paintings at a local craft fair. Teach English to those living in other countries over Skype. There are many ways you can make extra money, and you can put all of it toward your down payment.

Funnel Bonus Money into Savings

Whenever you get any unexpected money, automatically put it into an interest-bearing account, such as a savings account or money market account. Tax refunds, work bonus checks, gift money and more should all go into these accounts. By establishing a second account specifically for your housing deposit, you will be less likely to spend the money on other things.

Don't let the expense of a down payment deter you from your dream of owning a home. Consistency and discipline can help you get the money you need. Choose multiple strategies for saving and earning, and you will have the money you need in the shortest amount of time possible.

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