You've found the perfect
house. Interest rates are are still low. There's just one thing standing between
you and your dream home: a down payment.
Don't abandon your homeownership
quest just yet. Here are 10 ways to come up with the cash for your new castle.
||10 ways to come up with a down payment:
Pay off your plastic.
Paying bills is not fun, but it definitely will
help in your hunt for down-payment money. When you carry a credit card balance,
the ever-accumulating interest charges mean more of your money goes to the card
company each month. Keep that cash for yourself by cutting
your debt load. With Bankrate's payment
push system, you prioritize your debts and pay the most on the one with the
highest interest rate. Once that's paid, shift your focus to the next highest
rate and so on. You'll get the most money-sucking credit card bills out of the
way more quickly, freeing up more of your income to go toward building your savings.
Ladder CDs to boost savings.
Once you've got a few extra bucks, put it to work making
more money for you. Many investors prefer certificates
of deposit. They are low-risk and relatively accessible.
But when interest rates are low, the return isn't always
what a saver hopes. You can maximize the earning power
of CDs by buying different certificates at varying maturity
dates. For example, instead of buying one big CD, parcel
out your money into three-month, six-month and one-year
certificates. Known as laddering,
this gives you flexibility to adjust your savings as
rates change. Laddering allows you to lock in when rates
are high and when
rates are not so good, the process keeps you from
being stuck for too long with low earnings.
3. Use special programs.
There are many programs for home buyers in down-payment distress. Borrowers in
a wide range of incomes, locales and professional groups may have access to aid
Mae and Freddie Mac, the government-sponsored offices that buy mortgages and
package them as investments. Various nonprofit
and community groups also lend a hand to buyers struggling to put money down
on a home. And don't forget about assistance
from state agencies.
4. Tap your
If you're looking to buy your first home, let the Internal Revenue
Service help. Tax laws allow you to use
up to $10,000 in IRA funds as a down payment if you've never owned a house.
If you're married and you both are first-time buyers, you each can pull from your
retirement accounts, meaning a potential $20,000 down payment. Even better is
the IRS definition of first-time home buyer. Technically, you don't have to be
purchasing your very first abode. You qualify under the tax rules as long as you
(or your spouse) did not own a principal residence at any time during the two
years prior to the purchase of the new home. In these instances, Uncle Sam waives
the penalty for early withdrawal, but you may owe tax on the money depending on
the type of IRA. Many cash-strapped home buyers, however, find the long-term return
of investing in residential real estate is worth the short-term tax bill.
Borrow from your 401(k).
Do you have more retirement money in a company savings
plan? Consider borrowing
against your 401(k) for the down payment. There
are downsides to this strategy: Unlike an IRA home-related
withdrawal, you'll have to pay back any money you take
out of your company plan. The repayment will cost you
a bit more since the account contributions were made
with pretax money, but your payback will be made with
after-tax dollars. At least the interest payments on
this loan will be going back into your 401(k).
-- Updated: Dec. 29, 2006