How to Boost Your Down Payment Savings

The first step is to do an honest assessment of your finances. You can use money management software like Quicken or Microsoft Money. Or you can create a custom table in Microsoft Excel or a good old fashioned account book. It doesn't matter what you use as long as it works for you.

The important thing to remember is that this critical look is for your own good, it's not a judgment it is an objective financial overview. You need to know how much your making on a regular basis and exactly where your money is going in order to move forward.

Factor every expense and determine if you can cut costs anywhere in your overhead. Don't get anxious, this is not about depriving yourself. It is about making your money work for you and helping you achieve what you want: to own a home.

It's possible you find your down payment blinking on your computer screen in the form of four $100 dinners out, ten pairs of the same $60 jeans or thirty $4 lattes per month. These add up. Actually, if your monthly spending includes these items, it adds up to over $1000 a month or in a year the equivalent of a 10% down payment on a $120,000 home.

At this point you need to weigh your priorities and try to envision your goals. Think of trade offs that you can live with; otherwise you won't stick with it. Perhaps forgoing your $4 lattes on Wednesdays and eating out only twice a month. Again, you don't have to live like a monk just find ways to cut costs and still live a little, just a little less.

If after your assessment you find no excess spending in your budget, that's fine - it means you are living within your means. With your financial records in order, it's time to find out how much house you can afford and set your down payment goal.

Bankrate.com has lots of financial tools available free of charge on their website. The How much home you can afford? calculator is where you want to plug in your monthly numbers and find out how you'll need to save for down payment.

Adjusting the amount you enter in the down payment field allows you to see how this money affects your mortgage payment and overall target home price. Play with the numbers a bit, get comfortable with a few variations and then decide on your down payment goal.

With your financial records in hand and a set goal in mind - it's time to fast track to your down payment.

1) Out with the old

The hardest part of any goal reaching program is getting started. The task at hand is biggest in the beginning. To overcome the "get-going blues" turn to eBay or have a tag sale. The input is minimal and the return is gratifyingly immediate. Just grasp the motto that "one man's trash is another's treasure," then head to the basement, attic, garage and any deep or overflowing closets. If you don't know why you have it, haven't touched it in over a year or the price tag is still dangling it's time to pass it on.

You'll be pleasantly surprised when someone hands you a few bucks for something that's just been taking up shelf space. Whatever your clean sweep reaps in, it's likely enough to open a savings account earmarked for your down payment. Or you can plunk your auction profits into a CD - check out ING Direct's no minimum CDs that start at 5.10%.

2) Zero Interest

Take a second look at your income and expenses. If you are carrying a credit card debt, you are tossing your down payment away on interest. Set new goals to decrease your balance or balances using Bankrate's payment push system or "Learn to Play the Credit Card Game" on Oprah's Debt Diet. Not only do these steps help save money for a down payment, they will help improve your credit score and decrease the interest you'll pay over the life of your mortgage. The sooner you get rid of bad debt, the quicker your down payment savings will build.

3) Increase your take home pay

If you've been an asset to your company you might be due for a raise. Making more money is a great way to boost savings. Do an honest self-assessment of your role, your contributions and your income. Use salary.com to find out the current value of your position and come up with a presentation for your boss based on your research. Just be sure to pick a good time and emphasize your merit, not your financial needs.

If you work in a dynamic job inquire about ways to get extra hours, shifts or if there is a project that's been waiting for an enthusiastic go-getter. Some bosses will take pride in helping a hard worker accomplish their goals and would be happy to know you're saving for a home. Just use your discretion about disclosing too much personal information at work.

4) Up your 401(k) contributions

Even if your salary doesn't go up, there's still a way to get more money from your company. If you have a 401(k) in a company savings plan and it's matched by your employer capitalize on this by maximizing your monthly contributions. By upping the amount matched by your employer, you are gaining a 100% return on whatever you deposit. You can borrow this money when you are ready to buy a home. The downside of this strategy is that you do have to pay your 401(k) back with after tax dollars, but you are paying yourself back and you've still gained from your employer's contributions. Plus, if you end up leaving your 401(k) alone, you've padded your retirement.

5) Step into some moonlight

If your raise request got turned down and the 401(k) strategy doesn't apply, consider finding extra work through a second job. If you are an established professional market your expertise for hire, take on a few clients at home on Saturdays or one evening a week. Consider sharing your knowledge through an online resource like Helium, Associated Content or a personal blog. Sales positions are good second jobs for full-time professionals as they allow flexible hours, virtual offices and unlimited income.

If your professional reputation is non-existent or will withstand an odd job get a weekly waiter gig 1 or 2 nights per week, apply at local stores for part-time or place an add in your town's weekly for house & garden help for hire. There are lots of people willing to pay a fairly decent wage to help them get a project done or provide reliable support in an established business. Take pride in your willingness to work towards your goals and don't agonize over taking a job below your potential. It's a financial move, not a career. If you follow your hobbies, like museum-going or retail, you'll enjoy the temporary gig.

6) Get gifted

The IRS allows up to $12,000 gifts to be bestowed without tax consequences to the giver or recipient. Perhaps you've got an inheritance waiting when your favorite aunt sells her home or that your parents have set aside for your wedding. If these have been brought to your attention, ask the giver to consider the gift-exclusion tax law and release the funds to be put toward your down payment. It's likely they've set aside these funds with a life changing event in mind and buying your first home is just that.

The gift-exclusion isn't limited to family - the money can be from anyone. If you're lucky enough to have a benevolent friend who's offered help, ask if they'd be willing to gift you a portion of your down payment. Just be sure the money won't affect your relationship and that it's not a strain to the giver. It might actually save them money in taxes if they are in a high tax bracket.

7) Take early retirement

The IRS allows you to take up to $10,000 out of your IRA to use as a down payment on a home. It is intended for first time buyers, but also applies if you (and your spouse) have not owned a principal residence within two years of purchasing a home. Even if you have owned within two years, you can still withdraw from your IRA but there is a penalty for early withdrawal and you may owe tax on the money depending on the type of IRA. Spouses can each withdraw which means $20,000 is potentially waiting in your IRA to put towards your down payment.

The money is there and it's up to you how to use it but this strategy requires a lot of insight and research. However, the potential return on a long-term real estate investment could make it a good resource for down payment funds. It's wise to try other options first and use your IRA funds only after careful consideration.

8) Get a grant

Grants aren't just for non-profits, they exist for individuals too. Real estate sales are a driving force in the economy and there are countless grant programs to keep buyers buying. Many are for first time buyers, but programs exist throughout the country for buyers of all varieties.

In many urban locales, local and state programs provide grants aimed at keeping people in the city. Other programs provide grants to homebuyers who work in certain industries like nursing, law enforcement, emergency services, teaching, academics or social services. The best place to start your search is your industry credit union or your professional union. Enlist your local librarian's help and also contact Fannie Mae and Freddie Mac, two government sources where you can learn about first time buyer programs.

As you research and apply the ideas above, just remember that your are making choices that will lead to a down payment on a home. It's a terrific goal and although it may take a little time, the long-term financial and emotional rewards will make all your efforts worthwhile.