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How to save for a down payment

Published On: Mar 06 2014 03:09:13 PM CST   Updated On: Sep 04 2015 11:50:57 AM CDT
House and keys

iStock/scyther5

When buying a house, it is usually required for the buyer to put some of his or her money down on the purchase. While you don’t always need to put down 20 percent of the home’s cost, it’s a good idea to aim for 10 to 20 percent down.

How can you save up that much money? Use these tips for help.

Start saving: The first place to start is to figure out how much money you will need to save up. Then give yourself a deadline for when you’d like to buy a house and figure out how much money you will need to save each month to reach that deadline. One way to make sure you don’t spend the money you’re saving is to open a new savings account dedicated to your down payment savings.

Cut expenses: To help raise the money you need, find out what expenses you can cut from your budget. Some ways to cut costs are to cancel cable, stop eating out and start using coupons.

Borrow from your 401(k): Some 401(k) plans allow you to borrow from it. This is preferable to taking out a loan from the bank because it can be easier and quicker to get, and you’re also paying the interest on the loan back to yourself instead of the bank. A drawback to doing this is a mortgage lender could consider this loan as part of your debt. Also, if you leave or lose your job you could be faced with having to pay the amount back or face taxes and penalties on the amount.

Look into home-buying programs: There are various programs set up to help first-time home buyers. Take a look at what’s available in your area and see if you qualify.

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