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Budgeting for Home Buying

Making a cost effective budget can help you buy a home. If you want to buy a house, start by estimating what you can afford and making a budget to buy. Many prospective buyers find it difficult to accumulate enough cash for a down payment, especially if they are saddled with heavy debt. With some discipline and creative strategies, you can probably come up with more cash than you think. Check your current finances and investigate ways to save and raise extra funds.

Write down your monthly income, savings, and spending.

If you have a lot of high-interest credit debt, try to move your balances to cheaper cards and plan to spend a year paying off as much of that debt as possible.

Identify your long-term financial goals.

Owning a house may be one, saving enough for retirement may be another.

Make a home-buying savings plan.

Open a savings account just for this purpose and make regular deposits, even if you put asidejust $20 a week.

Look for other sources of down payment funds, such as a Roth Individual Retirement Account (IRA).

First-time buyers now have access to $10,000 of these funds penalty-free under certain conditions.

Cut back on non-essential spending.

Your friends and relatives will understand that you can't spend $20 to go to dinner and the movies if you say you're saving to buy a house. Your children will understand, too. In fact, saving to buy a house can be a family activity.

Make saving for a house fun.

Chart your progress on paper and post it somewhere to remind yourself of your goal.

Raising the Money

20 ways to come up with a down payment

  1. Ask your parents, other relatives or friends for help. If they can't give or loan any money, perhaps they'll agree to co-sign the loan.
  2. Sell (or borrow against) other real estate you own.
  3. Sell securities you own, or borrow against them through a loan from the stock brokerage.
  4. Sell collectibles or heirlooms you own.
  5. Cash in (or borrow against) the built-up value of any life insurance you have.
  6. Withdraw money from your IRA. If you're a first-time buyer you can pull out $10,000 penalty-free (though you must pay state and federal income tax on it) to put toward your home purchase. If you're not a first-time buyer, pull out the very least amount you must. Otherwise, you will have to pay both the 10 percent penalty and income tax on an early withdrawal.
  7. Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent. If you add too much to your debt burden, however, you may not be approved for a loan.

Read great finance articles at House and Home on MSN.

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