to come up with a home down payment
You've found the perfect house.
Interest rates are at historic lows. 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
1. 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.
2. 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 for.
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 or, 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 from Fannie 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 IRA.
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.
5. 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 down sides 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).
6. Get a gift.
Aunt Edna always liked you best. Take advantage of that favored
family status and ask her to make a present of your down payment.
Tax law allows gifts of several thousand dollars a year to be
bestowed without tax consequences to either the giver or recipient.
The gift-exclusion amount is adjusted annually to reflect inflation
(it's $11,000 in 2002), so check with the IRS to ensure guidelines
are met. Many wealthy people use this tax rule to reduce potentially
taxable estates while they're still around to get the thanks.
Not close to your family? Not a problem. The gift exclusion
isn't limited to relatives. The monetary present can be from
anyone, so track down a well-off friend now!
Article continued at http://www.bankrate.com/brm/news/mtg/20020807b.asp
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