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4 ways to come up with a mortgage down payment

[Dec 15, 2010.]

 

Current mortgage rates are near historic lows, making this a good time to purchase a home. Getting the lowest mortgage rates possible can help you keep your monthly mortgage payments manageable. But when you are shopping for a mortgage loan don't forget the importance of having as large a down payment as possible. Here are four ways to save more money for the down payment on a mortgage loan.



  1. Don't wait until the last minute to begin saving. Plan ahead to come up with the cash you need to buy a home. If you wait until a few months or even a year before you plan to buy it's probably going to be tough to save up a substantial sum of money. Keep in mind that if your down payment is less than 20 percent of the purchase price, you will end up paying for mortgage insurance (MI) on top of principal and interest. Use a mortgage calculator to run different scenarios to determine how much you need to save for homes within the price range you can afford.

  2. Funnel as much disposable income into savings as possible. Pick your priorities. If saving up for a home is the most important financial goal, then make a plan to do that. Consider giving up services and activities that you really don't need so you can have more money for the down payment. You may have to make some major sacrifices for a while so be prepared to make some tough choices.

  3. Use windfalls for the down payment. Cash bonuses, lottery winnings, inheritances and other unexpected windfalls can go straight toward the down payment on a mortgage. While it may be tempting to go out and splurge on some new stuff, take time to evaluate how important that stuff is compared to your goal of getting into your own home. The idea of owning a home of your own may keep you from overindulging in expensive meals, entertainment, hobbies, or shopping trips.

  4. Pay down credit card debt. Getting rid of high-interest debt is one of the best things you can do to improve your chance of saving up a substantial down payment. Go back through your credit card bills for the last year to see how much of your income has gone toward credit card payments. It may make your eyeballs pop out but at least you'll know what you are up against.


Don't drag your feet on making necessary changes to improve your financial situation. You may have to postpone plans to buy a home for a while to give yourself more time to prepare and get your money in order.



 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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