18 May 5 Secret Sources of Down Payment Money
A more significant down payment means paying off less interest over time and a shorter mortgage term. Making a larger down payment is in the buyer’s best interests. But most people don’t know how to access, find or save nearly as much down payment funds as they’d like.
Here are 5 Secret Sources of Down Payment Money.
Many buyers have a treasure trove of down payment resources at their disposal, hidden in plain sight, which can be used for a down payment.
First, there are your budget’s most significant line items. Everyone needs a budget to be successful with money. If you don’t have one, make one. Then, when you have your budget, you need to identify any expenses you can cut or reduce.
Seemingly small daily or monthly expenses can add up big time. For instance, at 20 bucks a day, eating out daily could easily cost you five grand over a year… And that’s just one cost.
Redirecting the dollars you would normally spend for some of these big-ticket items back into your down payment savings account is like pressing fast forward on your home buying timeline.
Second, let’s look at your stuff. When you need to save money, you can pull only two levers: you can spend less, or you can make more.
Selling stuff you don’t use is a relatively painless way to make more money to put toward your down payment. People commonly sell RVs, cars, motorcycles, electronics, antiques, or hobby-related items, gaining lots of extra cash to put on their down payment.
Third, you can work more. You can make use of your skills and time to earn more money. Working more means earning more and saving more to put towards your down payment.
Watch any Dave Ramsey video, and he’ll let you know how valuable it can be working more during specific periods of your life to save extra money and meet goals. Making sacrifices in the short to medium term can give your long-term goals a big boost.
Fourth, you can get help. You might be able to get help from parents, family or friends. Loans from family or friends are a terrible idea; they are damaging to relationships, and it just makes things weird.
But if someone is in a solid financial situation and is able and happy to provide a cash gift to help you with a down payment, this can be extremely helpful. Just make sure they write a letter stating the money was a gift for your home purchase and not a loan.
And fifth, you might be able to use your assets. For example, some retirement accounts allow you to borrow against or pull out funds, penalty-free, to apply them toward your down payment on a home.
For example, first-time home buyers purchasing a principal residence can take $35,000 out of an RRSP to put toward a down payment, which needs to be repaid within 15 years – or else you have to claim 1/15 of it in income each year. The repayment amount is listed on your notice of assessment. If you’ve sold a home and waited five years, you can use your RRSP once again.
So, to access the 5 Secret Sources of Wealth, you need to look at your budget and cut out what you don’t need, you can sell the things you don’t need, you can work more, you can ask friends or family for a gift, or you could access your assets.