As little girls, many of us dreamed of marrying the prince on a white horse and then having our very own castle too. Maybe the "dream castle" was a little cottage in the country with a white picket fence or a hi-rise condo in the city. Whether or not the prince ever came along, our dream for a mortgage on a place that would one day be ours never wavered. The challenge is making it happen in this topsy-turvy economy. Where do you start?
Do you have a job? If so, you're starting out in a good position. Your employer can offer the best way to start saving for your first house. The secret is an employer sponsored tax sheltered retirement vehicle.
Many employers offer a pre-tax long-term savings plan like 401K or IRA plans. An amount of pre-tax money, determined by you, is deducted from each paycheck and put into a special investment account. Frequently, your employer will match the amount you're depositing into the account, bring up the balance even faster. These accounts accrue a balance toward your retirement with pre-tax money and can add up faster than a basic savings account, but hold a stiff penalty for early withdrawals.
Tax sheltered retirement vehicles offer a one-time exemption for first time homebuyers allowing you to withdraw, without penalty, up to $50,000 before the age 59.5. This means saving for your first house faster, often with the help of your employer's matching funds.
Opening a money market savings account that offers a higher interest rate than a basic savings account will help in saving for your first house. Setting up automatic withdrawal from your checking into this savings account will guarantee a consistent growth in balance. Soon, you will have saved up enough in this account to open an IRA through the bank. The IRA will enable you to build equity even faster, as well as take advantage of the first time buyer's exemption.
Sure, a lower amount in the account will mean, in the long term, the balance will not compound as quickly. Buying a house, however, is a life choice in the style you'd like to live and this may be your only means for achieving it. On the plus side, you'll be diversifying a portion of your investment into the house as a real estate investment. This could bring you a positive return, depending on the market at the time you sell. Also, portions of your mortgage payment can also be used as a tax deduction, lowering your yearly income taxes.
You can take advantage of an FHA program allowing you to purchase a modestly priced house with only 3% down.
Of course, it's a wise idea to consult with a professional financial advisor for advice that best fits your situation. In addition, a tax professional should always be consulted prior to setting up a tax-sheltered vehicle or taking any withdrawal of tax sheltered funds.
Don't wait for your prince to come along or for the economy to change. Start taking steps to saving for your first house today. With careful research, patience and a commitment to being a devoted and consistent saver, your castle will become a reality before you know it.
Start saving at an early age! Be consistent and regular about saving. Even saving a small amount per paycheck will add up and compound quickly, allowing you to fulfill your life's dreams for the present and for the future. Don't put it off until tomorrow, even if you are only able to save a few dollars from your paycheck today.
Resource: Bryce Molloy, Licensed Banker, Chase Investment Services, J. P. Morgan Chase Bank, email@example.com
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