5 Ways to (Really) Save for a Down Payment

Rents are projected to outpace home values by the end of the year, according to Zillow, so it’s a good time to consider buying a home. Fixed mortgage payments and a more stable market are other reasons to make the jump.

Zillow projects that by the end of 2015, millennials will become the largest home-buying age group. Whether you fall into that category or not, coming up with a down payment can be challenging. Here are some strategies to help you get there.

Reduce large expenses

Sure, skipping your morning latte may help save money over time, but why not attack your biggest expenses head on for quicker results? We’re talking about your rent, which is likely eating up over 30 percent of your take-home pay. You can try to negotiate a better rate with your landlord, move to a cheaper location, or downsize — going from a two-bedroom to a one-bedroom can drop your rent by 25 to 30 percent, depending on where you live.

You could also bring in a roommate (or two). Sharing a home isn’t just for kids straight out of college anymore. In fact, the percentage of adults living with someone other than a spouse or partner continues to rise (32 percent nationwide in 2012; up from 26 percent in 2000, according to Zillow’s analysis of the latest Census Bureau data). Jump on the bandwagon and pocket the savings.

Automate savings contributions

This is a no-brainer: Tell your payroll department that you want a fixed amount automatically deducted from your paycheck and deposited into a designated savings account.

Start small. Most people can cut their income by 2 percent without even noticing, and the payoff over time can be significant.

Stash windfalls

The average tax refund in 2014 was $3,116; this year, it’s expected to rise to $3,295. And while it may be tempting to splurge, why not exercise some restraint and put your windfall into a designated down payment account? You’ll be happy you did.

Save less for retirement

This suggestion is certainly not the norm. And just to clarify, you should not raid your retirement account. But if you have a 401(k) employer match, and are already contributing the max (6 percent), consider stopping there and allocating additional cash toward your down payment — in a separate after-tax account.

Ask family and friends

Twenty-seven percent of first-time buyers in 2013 received gift funds from a relative or friend to help make a down payment, according to the National Association of Realtors. That’s up from 24 percent in 2012 and 22 percent in 2009.

Under the 2015 annual gift tax exclusion law, any individual can gift any other individual $14,000 per year, tax-free. So, a married set of parents can each give $14,000 to their single child for a total of $28,000. Or that same set of parents could gift to a married couple a total of $56,000. Here’s how: Mom writes two $14,000 checks: one to her son and one to her daughter-in-law, then Dad does the exact same thing, for a total of four checks of $14,000 each.

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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.