People in all generations face challenges when it comes to financing their first home. Those just out of college spend a significant portion of their paycheck on student loan payments and often find it difficult to put aside money for a down payment. During the 30s and 40s, many people find that childcare and credit card payments take up a large percentage of their take-home pay. While it can seem discouraging, you can take several steps to make home ownership a reality no matter what your age.
Get a Temporary Part-Time Job
When you already have a full-time job and limited free time, adding a second job can seem overwhelming. However, remind yourself that it’s only for a season. It’s also important to save all funds from your second job towards your down payment fund. With the proliferation of online jobs available, you could find something much more flexible than you expected.
Create a New Budget
It might seem impossible to save for a down payment on a house when you consider your current income and expenses. If you’re serious about owning a home sooner rather than later, you may need to make some drastic changes to your budget. Start by looking at expenses you know you can cut, such as eating out rather than packing a lunch and entertainment costs like downloading movies. It will take discipline to go without things you have been accustomed to, but it will free up funds to help you reach your goal sooner.
Tap into Retirement Savings as a Last Resort
When you have tried several other methods and still can’t come up with the money you need for a down payment, consider withdrawing from your 401(k) or your individual retirement account (IRA). While the Internal Revenue Service (IRS) normally imposes a penalty when people withdraw funds before they reach age 59 ½, it makes an exception for first-time homeowners. You can take up to $10,000 out of your retirement savings without incurring a penalty.
As this reduces the amount of money available to you at retirement, you should only use it as a last resort. Consider making it a goal to re-invest the money once you’re in your new home and more financially stable.
Improve Your Credit Score
Under the Fair Credit Reporting Act, all consumers are entitled to receive one free copy of their credit report from all major reporting agencies once a year. Before you start the home-buying process, we recommend obtaining a copy of your credit report and score. The higher your score, the more likely mortgage companies are to approve your request for a loan. While having a high score doesn’t help you save for a down payment, it will make the process go faster once you do have it saved.
To improve your score, make sure that you pay all bills on time and pay down balances as much as you can. Keep in mind that one of the key things mortgage lenders look at is how much credit you utilize versus how much you have available. We also recommend checking your report for errors since up to 20 percent have at least one inaccuracy. If you spot one, notify the agency reporting it and request that they update their records. Federal law requires that they do so.
Please contact us at Golf and Shore Properties for additional tips or to schedule a home showing. If you have a tip that has worked well or that you’re using, please share it in the comments below.