Saving for DOWN PAYMENT on a Home
Saving for Down Payment
First of all you need to establish a “plan”, stick to it and discipline yourself in regards to putting an “end” to unnecessary expenditures. Sure it is fun to go out to dinner, or go watch a professional sports team, see a play at a theatre, watch new movies or pick-up an expensive cup of coffee etc, etc, etc… but the reality of it is that by cutting back on those type of expenditures you can and will increase your savings and it will get you closer-and-closer towards the “goal” of having a sizeable down payment for your envisioned purchase of a home.
In addition, stay “focused” - I can’t say that enough because this, by-no-means, is going to be a short journey in regards to time. Depending on your annual salary and current indebtedness, you could be looking at about a 6 to 8 year plan or more… see what I mean about you needing to stay focused on your plan/goal?
Then again you could be one of those lucky children whose parents are in a financial position to gift you the down payment or give you a portion of your inheritance “upfront” for the needed down payment. More power to you if your parents are in that category. A gift or “upfront” inheritance of at least a 20% down will help you to get a better rate on your mortgage loan and to avoid paying private mortgage insurance premiums (PMI) that any buyer would be subjected to if the down payment is less than 20%.
What is factual is that I know that most parents are not in that financial position and I‘m sure you will agree with that. So more-than-likely it is going to come down to you in order to “make the down payment happen”.
A loan, from parents or whomever, for the down payment simply does not make much sense either because not only will you owe on the mortgage, you will also owe on the loan for the down payment… so where does that get you?? You are more in debt – that’s where it gets you!! And quite honestly in this scenario, most wanna-be-buyers may not qualify for a mortgage loan if the situation is that in order to buy they also have to borrow for the down payment. In addition, I may be wrong on this but I’m pretty sure that most mortgage lenders may not want to take a chance where the buyer, in a “true sense”, is showing that they have “no skin” in-the-game by having to borrow 100% of the total purchase price.
Tips on how to increase that Down Payment “Savings Bucket”
• Start with a plan, discipline yourself and stay focused.
• Get rid of high interest debt ASAP (ie: credit cards etc)
• Instead of paying rent, look into the possibility of moving in “rent free” with your parents, a family member and/or a friend.
• Think about redirecting all 401K or IRA account payments to your savings account during the “saving for down payment” period. In other words, put a pause on sending money to retirement accounts (doing this will help avoid any potential early withdrawal fees or penalties from either of these two accounts). Have your Accountant and/or CPA consult you on that one.
• Think about getting a second job (ie: part time or anything that creates additional income).
• Reduce the amount of times you go out to lunch.. “brown bag it” more often than not and you will see real savings in that regard.
• Skip vacations - and as we all know this will help to save tremendously.
In addition; While in the process/journey of saving, saving and saving, always work on and keep your credit score as high as possible so that when you are ready to buy, a higher credit score will position you to get a lower mortgage rate – this you will see that it equates to a lower monthly mortgage payment as well…. How awesome is that? And this especially when it was you and your sacrifices that put you in this position to purchase with lower mortgage payments.
Once you have reached your goal of saving for the down payment, you are only "steps away" where you will eventually be able to proudly say that you are a homeowner !!
As a REALTOR - BROKER, I would be very proud of you when you have reached your goal. And always know that when you are good-to-go and ready to buy… it would be my pleasure to represent and consult you in the Buying process.
Oscar Castillo : BROKER - REALTOR®
Please contact us if you have any questions or comments.