Budgeting to Buy

Many prospective buyers find it difficult to accumulate enough cash for a down payment, especially if they are saddled with heavy debt. With some discipline and creative strategies, you can probably come up with more cash than you think. Check your current finances and investigate ways to save and raise extra funds.

  • Write down your monthly income, savings, and spending.
    If you have a lot of high-interest credit debt, try to move your balances to cheaper cards and plan to spend a year paying off as much of that debt as possible.
  • 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 make regular deposits, even if you put asidejust $20 a week.
  • Look for other sources of down payment funds, such as a Roth Individual Retirement Account (IRA).
    First-time buyers now have access to $10,000 of these funds penalty-free under certain conditions.
  • Cut back on non-essential spending.
    Your friends and relatives will understand that you can't spend $20 to go to dinner and the movies if you say you're saving to buy a house. Your children will understand, too. In fact, saving to buy a house can be a family activity.
  • Make saving for a house fun.
    Chart your progress on paper and post it somewhere to remind yourself of your goal.
Home affordability calculator

20 ways to come up with a down payment
Coming up with a down payment is often the biggest hurdle for first-time home buyers. Here are some suggestions:

1.   Ask your parents, other relatives or friends for help. If they can't give or loan any money, perhaps they'll agree to co-sign the loan.

2.   Sell (or borrow against) other real estate you own.

3.   Sell securities you own, or borrow against them through a loan from the stock brokerage.

4.   Sell collectibles or heirlooms you own.

5.   Cash in (or borrow against) the built-up value of any life insurance you have.

6.   Withdraw money from your IRA. If you're a first-time buyer you can pull out $10,000 penalty-free (though you must pay state and federal income tax on it) to put toward your home purchase. If you're not a first-time buyer, pull out the very least amount you must. Otherwise, you will have to pay both the 10 percent penalty and income tax on an early withdrawal.

7.   Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent. If you add too much to your debt burden, however, you may not be approved for a loan.

8.   Ask for help from your church, synagogue or other nonprofit organization. Fannie Mae 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, RV or second car you own and use the cash for the down payment.

0.   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.

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, if permitted, 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 such as VA or FHA that require little or nothing down.

14.   Use a lease option that lets you rent the house now and buy it after you save.

15.   Look for a home with an assumable loan. Instead of buying out the owner's equity, ask the seller to carry back a second mortgage for an equal amount. That way you can buy the home without a down payment.

16.   Pawn something you own and use the proceeds for a down payment. You can get the item back after you've moved in and can afford to pay the pawnbroker back.

17.   Refinance your car or other vehicles and add the proceeds to your down payment.

18.   Offer something other than cash (a car, boat, or collectibles) to the seller in lieu of a cash down payment.

19.   Offer your services or 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, desktop publishing services if you're a designer, artwork if you're an artist or legal work if you're an attorney.

20.   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 and they're anxious to have the home occupied, or if you have skills (carpentry, landscaping or even painting) that you can use to increase the home's value.