Simple, quick and painless ways to save for a home

Buying a house usually requires serious savings. After all, with the median home price hovering at $375,000, a 20% down payment equals $75,000. Yes, you can deposit less. (The national average is 12%, although some loans only allow 3%.) However, in today’s competitive market, more cash up front can give you an edge and help you make highlight your offer.

According to the National Association of Realtors®, it’s no surprise that among young homebuyers, 30% say the down payment is the most difficult step in buying a home.

Yet, as daunting as it can be to amass that pile of cash, there are plenty of tactics that can help you get there faster and with less sacrifice than you think.

Some of the tips that follow are tried and true, while others are relatively new, in the form of nifty apps that will fill your pockets with extra cash with little effort. See which ones are right for you, so you’ll be armed and ready once you get there to make an offer.

1. Start a real estate fund and pay for it first

Regardless of how much money you’re trying to save, you probably know that funds in your checking account can disappear. To prevent this from happening, it’s a good idea to set up a separate savings account for your down payment.

“Automatic recurring transfers to a dedicated savings account [are] a great, simple strategy for systematically building up a down payment,” says Tanza Loudenbackcertified financial planner and journalist.

Although you can transfer money from your checking account to your personal fund, an easier solution is to automate these payments on a regular basis, such as every two weeks, if that’s when you get paid by your employer.

“If you get paid regularly and can set it up so that part of your direct deposit goes into a [house fund] without even feeling the loss is even better,” adds Loudenback.

2. Keep your home funds in a safe, low-interest account

Once you have a real estate fund going, you may be wondering how to grow it, as it waits for you to find the right home. After all, inflation is at its highest level in 39 years, at 7%.

Does that mean you should invest your real estate fund in stocks to keep up? As logical as it may seem, no. Stocks go up, but they can also go down – what if that downturn happens just when you’re ready to make an offer?

“Anytime you want access to your money in the short term — one to two years or less — you should consider a High Yield Savings Account,” or HYSA, says Jay Zigmont, certified financial planner and founder of the financial planning company Live, Learn, Plan. “Shop online, and there are great options.”

You won’t earn much interest on your savings, he notes, but the money will be there when you need it.

If your savings period is three to five years or more, Zigmont says you can consider investing your money in stocks, but then you take on the market risk. Certificates of deposit are another option, but keep in mind that if you spot your dream home sooner than expected, CDs come with early withdrawal penalties.

“Your money needs a job, and if its job is to be there for a down payment on the house, it’s doing its job in a HYSA,” he says. “The last few years have seen wild swings in stock returns, and the challenge is that if you need cash in a downturn, you could be hurt.”

3. Crowdfund your deposit

You may have loved ones who are happy to contribute to your homeownership goal. If you spread the word to your friends and family, they might contribute to your down payment rather than, say, inviting you to dinner on your birthday.

HomeFundIt is an option designed to help you fund your down payment. Created by mortgage banking company CMG Financial, it works by getting you pre-qualified for a mortgage online, then building and promoting your fundraising campaign. (Note: you only have one year after your first contribution to close on a home, and you must borrow from CMG Financial to purchase your home.)

Another option not tied to a particular lender is feather the nestwhich lets you spread the word on your social network, like with a GoFundMe campaign, with a target amount, time frame, and updates on how close you are to your goal.

4. Look for cash incentives

Friends and family aren’t the only ones involved in your home buying efforts. Some companies will also offer cash incentives.

An example is Inferior, which has an HYSA insured by the Federal Deposit Insurance Corp. It’s called HomeFund and has an annual return of 0.75%. When you sign up, it will offer you $500 to spend on closing costs when buying a house. From there, this app also lets you shop around with various lenders to find a mortgage that’s right for you.

5. Save your loose change

More and more aspiring homebuyers are using apps to help save for a down payment, and they’re smartly designed to minimize pinching sensations. For example, tassels rounds up your credit card payments to the nearest dollar and funnels that spare currency into a designated account that you can assign to a house. Over time, it adds up!

“Whether it’s earnings from app rounding or even money earned on Rakutan, which pays you to make purchases on their site, people make a game of it,” says Tami Bonnellco-chair of EXIT Realty Corp. International.

6. Turn your rent into a deposit

Another option for tenants is Bilt Rewards. This app, the first of its kind, turns on-time rent payment into “points” which can then be turned into cash that you pay for a deposit. (There is also a Bilt Mastercard.)

Bonus: This service can help you establish your credit score, which lenders will check to see how reliably you pay rent. This serves as proof that you would also be paying a monthly mortgage bill responsibly.

7. Look for local down payment assistance programs

Many local governments offer down payment assistance programs and grants. Often these are income-based, but some offer forgivable loans to improve run-down properties. Some also offer financial assistance to teachers, firefighters, healthcare workers and other professions.

“I normally advise families to look for these programs on their local housing department’s website,” says Jason J. Krueger, Certified Financial Planner and Advisor at Ameriprise Financial Services in Madison, WI. “For example, I live in Dane County, so I would search ‘Dane County Down Payment Assistance’ to see what’s going on.”

8. Check your source deductions

If you get a tax refund every year, consider reducing your exemptions and taking home more money. Of course, you won’t get that fun refund in the spring, but the extra money that comes your way can go toward your down payment. Siphon off this amount via the previously mentioned automatic deduction.

9. Consider a last-minute payment for your retirement plan

You will want to tread carefully here. Most finance professionals don’t recommend plundering retirement funds for a down payment. That said, some IRA and 401(k) plans have a unique provision for tapping into a retirement account for a penalty-free down payment.

These funds, once withdrawn and spent, will be difficult to replace. This could jeopardize your financial future, so only consider this option after careful consideration. Meeting with a certified financial planner may be a good idea before making this move, to see if you have any alternatives.

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