3 Steps To Start Saving Up For A Down Payment

Amassing a giant chunk of change is the best way to nail down a lower payment for a vehicle or home, but the process can be so long and arduous that it prevents you from proceeding. The key to following through with your goal is to set a reasonable plan in place and stick to it. The tough part is to find a way to get the ball rolling.

The Frugal Toad offers these steps to jolt you into hyper-saving mode:

* Sell stuff. If you own a big-ticket luxury item — say, an all-terrain vehicle, golf clubs or pool table you hardly use — consider selling them off to raise some quick funds. An initial boost in funding tends to make it easier to add on to the pile.

* Get liquid. If you’ve got money tied up in investments, think about pulling out what you can to free up some cash. If you’ve got a broker, talk about the tax implications to make sure you’re timing and implementing your transactions so you’re not hit with unnecessary taxes and fees.

* Beg. It can be humiliating to approach parents or other loved ones for a loan or gift, but a lot of people do it. To avoid hard feelings, nail down an agreement in writing about how you’ll use and repay the funds.

Saving Money for a Home Down Payment [The Frugal Toad]

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  1. TuxthePenguin says:

    “* Beg. It can be humiliating to approach parents or other loved ones for a loan or gift, but a lot of people do it. To avoid hard feelings, nail down an agreement in writing about how you’ll use and repay the funds.”

    If you do this for a house, make sure you do it far enough out that the funds are in your account long enough. Most banks will ask for six-months worth of statements and you’ll need to explain any large deposits. Borrowing to make a down payment is a big loan no-no.

    • DevsAdvocate says:

      Agreed. But even if they do catch it, they only ask for proof that the funds came from a relative as a ‘gift’… i.e. a copy of their statement showing the transfer to you.

      • AcctbyDay says:

        Half right, they will demand a signed and notarized letter deeming the funds a gift. They will also demand a bank statement showing the funds being transferred etc. You cannot, absolutely cannot borrow money to borrow money to buy a house.

        • MMD says:

          Citation needed. Because I used a gift fro my parents for the down payment on my house and only had to provide a signed letter from them, detailing the gift.

          • Bremma says:

            This is true. I just bought a house last week and was ‘gifted’ money by my parents. I needed t o have them fill and sign a form (though it did not need to be notarized in this case), send a copy of their bank statement showing they had the money, and then give my loan officer a copy of the deposit receipt once the money was deposited.

            Also, I am not sure how long ago you did this, but many things have changed recently in how loan approvals work, so there are more steps to go through and things to watch for.

  2. Blueskylaw says:

    “3 Steps To Start Saving Up For A Down Payment”

    1). Don’t buy digital crops
    2). Cash in your beer can collection
    3). Get that third job that seems so necessary these days

  3. The Happy Homeowner says:

    Don’t forget to also save a contingency fund for the big move, necessary repairs/renovations, furniture, etc. So many people underestimate just how much they’ll spend when actually moving into their home!

  4. Bsamm09 says:

    “Get liquid. If you’ve got money tied up in investments, think about pulling out what you can to free up some cash. If you’ve got a broker, talk about the tax implications to make sure you’re timing and implementing your transactions so you’re not hit with unnecessary taxes and fees.”

    Isn’t this already saving up money? I think this would be done when you have the down payment and need to move it to cash to pay the bank.

  5. Gman says:

    Three more valuable tips:
    - Cut spending: Create a spreadsheet of all of your monthly finances. Look at examples of where you can cut [eating out, high priced cable subscription services, etc]. Save that up. Can be significant over a few years.
    - Get in a serious relationship – Be surprised how much a 2nd income can work for future big purchases. At the very least they can pay down debt so you can put more towards the down payment.
    - Work with your bank or realtor. You will be surprised how someone with good credit can negotiate nowadays. Find a property that is rent to own and work out with the bank and owner to put some of the rent towards the down payment.

  6. mortgagejake says:

    I have to throw something else out there. As someone that sees bank statements of people buying, you better be able to paper trail every large deposit for the last two months. So, if you are selling a pool table..get a bill of sale, take pictures of it, get money in the form of a check. And, not just for pool tables. I one time had to pull up the Kelly Blue book value of a truck to show it was sold for a reasonable amount.

    • clippy2.0 says:

      What is considered “a big amount”? I don’t consider selling a used car at all in the same plane as selling a pool table

    • BBBB says:

      “So, if you are selling a pool table..get a bill of sale, take pictures of it, get money in the form of a check.”

      Another way to deal with selling stuff or receiving money is to use that money for living expenses and leave more of the paycheck money in the bank. Just spread it out over time if it is enough to make things look suspicious.

  7. StatusfriedCrustomer says:

    I recommend eating an apple and savoring each sensual, tiny delicious bite.

  8. Hi_Hello says:

    wt? what if you don’t have stuff to sell? or stuff to liquidate, and you everyone you are are broke?

    I think if you need a lump sum to start, get a side job and use that extra income for it.

    • j2.718ff says:

      My favorite part of the article is where it suggests selling off that timeshare you own, but haven’t visited in years.

      Oh yeah, the timeshare I bought when I was a reckless college student…. I was wondering what those maintenance fees and property taxes were for.

  9. hansolo247 says:

    I just moved from FL to DC, and a down payment here buys a house outright in FL.

  10. Nigerian prince looking for business partner says:

    We just refinanced our mortgage. I had absolutely no idea how low rates have gotten (we just refinanced last year) — We just went from a 20 year mortgage, to a 15 year without changing our payments.

  11. AcctbyDay says:

    I can’t believe that consumerist posted this. You absolutely cannot borrow your down payment. The bank will disqualify you. I just cannot believe this.

    • AcctbyDay says:

      * Beg. It can be humiliating to approach parents or other loved ones for a loan or gift, but a lot of people do it. To avoid hard feelings, nail down an agreement in writing about how you’ll use and repay the funds.

      This is not even remotely what the article says. The article specifically stipulates asking for gifts. You cannot borrow money to buy a house. They have laws against it for a reason. How can you possibly post this in good faith for the consumerist audience?

      • LizziePoo says:

        Technically you *can* borrow money from your 401(k) in order to purchase a home. In fact, it’s a specific type of 401(k) loan called a “primary residence loan.” So, yeah. That.

    • AcctbyDay says:

      Gah, I’m so irritated. You borrow from the bank of course. You can’t borrow from the bank AND relatives.

    • j2.718ff says:

      And yet just a few years ago, the bank would happily make another loan to you to cover the down payment (and maybe even add a little extra for those repairs you’re planning, and the furniture you want). Ah, those were the days!

    • dolemite says:

      I did, years ago. It was called an 80/20 loan. It’s basically getting 2 loans. The 80% is for the house, and the 20% is for the down payment. I’ve since consolidated into one mortgage, but you used to be able to do that. I didn’t have to pay PMI either.

      • Nigerian prince looking for business partner says:

        We did pretty much the same thing — We had an 80/10/10 loan, which avoided PMI, and still provided lower interest rates than a VA loan. Between chipping away at principal and the house appreciation, we refinanced it a few years later when we hit 80% LTV.

        • webweazel says:

          Same here. Last house we bought with a 80/15/5, or 5% down payment. The 80% was the “primary” mortgage, and the 15% was a secondary loan at about a 2 point higher interest rate. It was a much smaller payment, of course, and was easy to pay extra on. Plus, the money saved from not having to pay PMI helped pay down that loan pretty quick.

          Even 10 years back, it was difficult to get that type of loan only because setting one up was more work for the broker and they didn’t feel like doing it. We had to insist on it, and he did it just fine.

          Getting the mortgage to our current house 6 years ago was a pain, too. The spouse had to threaten to walk out of the broker’s office, if he would not consider a fixed rate loan. All he wanted to push was an adjustable rate.

          Best advice I can give on shopping for a mortgage is– get educated on your loan options and which type will be right one for you– don’t talk to one broker, talk to 6 (if any of them try to charge some kind of fee up front-walk away quickly)– get written estimates up front to compare fees and look for any surprises– then and only then choose who you will go with. Remember they work for the bank, but YOU pay the broker’s bills with a signed loan, and you are free to walk out the door at any time and talk to a different broker.

          • BBBB says:

            A 80/20 or 90/15/5 is disclosed the lender and they take that into consideration when they approve the loan. What they don’t like is a private loan that is presented as your savings for a down payment – that falsely makes you look like a lower risk borrower.

  12. mannyvel says:

    Sell stuff? It’s unlikely that anyone that needs money for a down payment has anything worth selling. If they do:

    * sell the iphone
    * sell the iPad
    * sell the xbox

    Realistically, they instead should:

    * drop the landline for voip
    * drop cable/direct TV/etc
    * cut back the cellphone

    If you don’t want to do that, then maybe a house isn’t for you. A house is a significant expense that lasts for a long time. You can’t fake your way into making a house affordable anymore.

    A down payment is a demonstration that you have enough financial discipline and means to actually keep paying for your house for an extended period of time. If you can’t make the downpayment, then you shouldn’t buy.

  13. Cor Aquilonis says:

    Beg my parents for money for a down payment on a home? No thanks, I’m a grown adult. I don’t need Mommy and Daddy to buy me things any more, and I scorn anyone who has to beg from their parents. Ick.

    My wily plan is to make as much money is possible, while not spending very much. This should create a phenomenon called “savings.” If I do this, over time I should accumulate something called a “down payment” and and “emergency fund.” I plan to use the “down payment” to buy a home, and the “emergency fund” will be available for… emergencies. I hear this is the traditional method.

    But you go ahead and sell all your toys and raid your retirement plan and mooch off your parents. I’m sure that will work out just fine.

  14. pixiegirl says:

    Maybe you could spend less than what you earn then you can put it into savings. Delayed gratification seems to be a foreign concept now a days.

    Sadly I see way too many people mooching off their parents and it’s really sad. I know a few people who have their kids & their families move back in with them. And it’s too the point where they should be retiring but they can’t because they can’t afford the bills of having two families living under one roof and they’ve blown threw their saving/retirement taking care of their adult kids. I’d be SO embarrassed to mooch off my family like that. It’s one thing to need a bit of help because someone lost a job or had some sort of emergency, stuff happens. It’s another when you simply don’t know how to live with in your means and expect someone else to foot the bill for your lifestyle when you can’t be bothered to make any sort of adjustments to your spending habits. I’m not against multi family house holds either as long as everyone puts in their share to cover the bills.

  15. Buckus says:

    Or, you know, don’t spend money you don’t have.

  16. mikeMD says:

    Seriously?

    None of these are mine but worth passing. Consider keeping the money in a separate account, preferably at another institution. Cut up or refuse any ATM card, etc.

    Set up an automatic transfer into that savings of an amount at least equal to your projected monthly payment (mortgage principal/interest/escrow/taxes) possibly with some ajustment for current rent or car payment.

    Pretend that money does not belong to you anymore.

    If you are not living comfortably on that amount, you are not ready to buy.

  17. Extended-Warranty says:

    This is why I love the internet. Instead of addressing the real issues that plague society, we turn to entitlement. Just beg your parents!

    The future of the web is looking bright!