| Getty Images Key Takeaways Bringing in additional income is one of the best ways to save quickly for a down payment.
Paying down debt not only frees up money every month going forward, but it can also increase your credit score, helping you to get a lower interest rate.
With the Fed increasing interest rates, savings products are paying higher yields, helping your savings grow faster.
If you are looking to buy a house, the good news is that real estate is no longer the hot seller’s market it was a year ago. It’s still not a buyer’s market again, but there isn’t as strong of a demand for housing right now. This means price increases have slowed, and fewer buyers make it more likely that your offer will be accepted.
But what if you’re just at the beginning stage of the process and building up your down payment? How do you quickly and effectively build your savings? Here are some ways to help you save money for a house and where to put the money, so you earn as much interest as possible. Take on a side hustle
One of the first things you can do to help save for a house is to increase your income. The extra money can be put towards your down payment, allowing you to fund it faster.
If you find you love your side hustle, you can also keep it long term and use the cash to pay extra on your mortgage – after you purchase – so you will be mortgage free sooner. Or you could put this money into a savings account and use it as a down payment if you decide to upgrade in the future.
At the end of the day, you need to find a side gig you enjoy. Otherwise, you will burn out, quit, and end up not saving any extra money. Pay down debt
Paying down debt might not sound like a way to afford a house, but it is. When you pay off your debt, you free up the money you previously used toward loans and credit cards. Now you have more money that can be used to pay your mortgage or save for a house.
Another benefit of getting rid of your debt is an improved credit score. The higher your credit score, the lower the interest rate you may qualify for. Over the life of the loan, this could translate to tens of thousands of dollars.
For example, if you take out a 30-year, fixed-rate loan at 7% for $200,000, you will pay $279,021 in total interest. Get the same loan but with an interest rate of 6.5%, and you pay $255,085. That is a difference of about $24,000 in price for just a 0.50% difference in rate.
Additionally, lenders look at how much debt you have in relation to your income (known as your debt-to-income ratio) to judge whether to lend you a mortgage. Keeping that ratio as low as possible ups your chances of getting approved.
Even if you can’t pay off all your debt, make it a point to pay off a portion of it so your credit score can rise and you can realize some savings. Take advantage of retirement accounts
Finally, don’t overlook your retirement accounts. Most experts believe the money you put into retirement accounts should not be used for other purposes. However, when it comes to buying a home, this asset will appreciate over time. Therefore, there is some justification for taking out a loan against your 401k or making a one-time withdrawal from your IRA as a first-time home buyer to purchase a house.
If you have a 401k plan, you can take out a loan from this account. The loan won’t be reported to the credit bureaus since it is your money, and the interest you pay on the loan is interest you are paying back to yourself since you are taking the loan against your 401k.
While this sounds like a great idea, understand that when you do the math, it usually is a bad idea as you end up with less money in your 401k than if you didn’t take out the loan. This is because you lose out on the compounding of your money had you left it invested. Even though you are paying yourself back, the time it takes to repay the loan will cause you to end up with a smaller balance in the long run. Plus, there are other factors at play If you leave […]
source Real Estate Trends: How To Save Money For A House In Today’s Market
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