A great new article by

Andrew Rombach
LendEDU | Content Associate
w: https://lendedu.com/

How to Free Up Cash for a Mortgage Down Payment

Buying a house is a major life step. It can put you on track for having the security of a permanent home and building equity you can tap into later in life. But buying a home is rarely easy. One of the first steps a potential homebuyer has to take is saving up money for the mortgage down payment. And this step is often the most difficult.

While it’s possible to buy a house without a down payment, it’s smart to build one up. You could be turned down for a loan if you don’t have a down payment that’s large enough. The down payment gives banks confidence that you are invested in your home and will work to avoid foreclosure and losses. And the bigger the down payment, the less your monthly mortgage will be.

How to Free Up Cash for the Down Payment

Saving up thousands of dollars for the down payment requires some effort, but it will benefit your long-term financial health. The effort will all seem worthwhile when you spend that first night in your new home. Let’s look at some great ways to save the down payment money you’ll need.

Stick to a Cash Envelope Budget

With the envelope method, you physically handle the funds for your monthly budget. Account for necessary fixed costs such as rent and car payments. Factor in discretionary spending for items such as food, gas, and entertainment.

Once you determine what you’ll allow yourself for discretionary spending for the week or month, take that amount out of your bank and put it inside an envelope. The rest of your paycheck after your fixed expenses are taken care of is then put in your savings.

Every time you spend money for food, gas, or entertainment, you’ll take it from the envelope. When that envelope money is gone for the month, you’re not allowed to spend anything more.

This can be a powerful method because most people have a harder time parting with cash than they do making purchases on credit cards or debit cards. Seeing that cash stack get thinner in your envelope will help curb your desire to spend. The key to this method is willpower.

Consolidate or Refinance Credit Card Debt

If credit card debt is preventing you from saving up for a down payment on a house, consider consolidating or refinancing your credit card debt. You may end up with a lower APR on your debt, which should help you chip away at that debt. With a reduced rate & short repayment plan, you should stand to save some money over repayment. Remember that the point is to get a lower interest rate, or APR.

There are a couple of ways to do this. Opening up a balance transfer card is one method. If you apply for and get the right card, you can transfer your debt to a new card with 0% APR during the first six to eighteen months of opening an account. With a lower rate, you should be able to pay off the debt more effectively. Keep in mind that you must pass a credit check in order to get a card.

The other method is a debt consolidation loan. Here’s how it works. You can take out a personal loan and use it to pay off your credit card debt. You are left with an installment loan as well as a new interest rate and repayment term. Ideally, this loan has a lower interest rate, which is a necessity in order to have a chance to save money. Keep in mind that only the most qualified applicants can secure an ideal low rate.

However, these aren’t instant fix-it solutions. For starters, taking out a new loan to pay off debt or transferring debt doesn’t just make it go away. While that’s obvious, you’re also left with a clean credit card as a result. If you continue to spend frivolously after making one of these moves, then you’ll be back right where you started in no time.

Prioritize Paying Off High-Interest Debt

By focusing on paying off high-interest debt early, called the “debt avalanche” method you can cut back on the interest payments that accumulate and compound. In the long-run, that can save a significant amount of money that you can put toward a mortgage down payment.

Another method is the “debt snowball” method, in which you pay off the debts with the smallest balances first. While this method does not save as much directly, it can provide good motivation to keep paying down your debts.

No matter which strategy you use, by the time your debt is paid off, you’ll be able to progressively save more each month for your house down payment.

The downside to this is that it can take a long time, depending upon how much debt you carry and how motivated you are to paying it off.


Remember that the point of all this is to get ready for a mortgage down payment. Finding ways to pay off debt or save money more effectively is one of the first steps to take if you want to put down enough money for a down payment.

By Andrew, a Content Associate at LendEDU – a consumer education website and financial product marketplace. Andrew has written about various different financial topics over the past few years and has gained quite a bit of experience managing his own debt!