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Saving for a Downpayment

Is it time to buy?

With interest rates down and inventory up, there’s little doubt that you’re probably  taking a good, long look at investing in a home of your own as many others are doing. Home ownership brings many benefits so if the only thing keeping you back is a down payment, then today is the day you can get started!

It’s not always easy to save the necessary funds  just get into a house of your own. Here are some simple things you can put into your action plan for saving that down payment money in less time.

Set a Deadline

Setting a deadline can be a powerful motivator to accomplishing great goals, and buying a home is a pretty big goal! So pick a date – one year from today, three years from today, maybe on your 30th birthday. Once you know where you are, it will make setting a timeline easier.

Pay off Debt

If you have any outstanding debt – college loans, credit cards – then your first step is to pay down or pay off as much as you can. Not only will this repair your credit score, but it will also let you save even more money for your downpayment. Take the highest interest rate one first, get it paid off, and then get to work on the next one.

How much do you need?

The bigger your downpayment, the smaller your monthly payment will be. This is a great time to sit down with a mortgage loan officer and with a real estate professional to determine your needs and wants. They’ll help you figure out how much house you can afford and what kind of mortgage you qualify for. Different types of mortgages require different downpayments, and this isn’t a step you can skip.

 money in a jarCreate a “Down Payment” account

Ever see those little ceramic pots with “House Fund” or “Vacation Fund” on them, or the piggy banks with the “do not open ‘till holiday shopping time” labels? By opening a savings account just for your future home purchase, you help lessen the likelihood of tapping into that money for other things. Check with your bank or even local credit unions to see if they offer any special interest rates or programs for first time home owners looking to buy.

Automate your savings

You may have heard the expression “Pay Yourself First.” Money you put into your down payment account is money you’re paying yourself, before you buy your morning coffee or hit the mall. Once you’ve figured out how much you can sock away every month, have that amount automatically withdrawn from your account and put into savings before you even see your paycheck! Most employers can do this in a simple step if you are direct depositing your paychecks. Out of sight, out of spending reach.

 Ask about IRAs

If you have IRAs, check to see if yours has any first time home buyer credits. Some will allow you to invest a considerable amount of pre-tax dollars and withdraw without penalty for home purchases and they often provide more return on your investment than a traditional savings account. Check with your IRA provider or financial advisor first.

 Every little bit counts

This is the fun part. Get a money container for your house. You can make it as decorative or as plain as you like. Use anything from a beautiful glass jar (where you can see your results) to a coffee can (where you can hide your treasure). Make a pact with yourself, your spouse or significant other, and even your kids. Each week, put whatever you can in the jar towards your house fund. From leftover change from the store to a couple of dollars here or there – into the jar it goes. In fact, whatever you’d normally spend, save instead, such as forgoing the coffee house vente latte at $6 a pop every day – that would be $42 a week you could put in your jar. Or pack a lunch instead of buying. You could save $5-$10 or more a day.  Make it a fun thing every day and at the end of the week to count up your accomplishment, put it in an envelope with a deposit slip, and put it in your savings. It’s amazing how fast it can add up when you make it a contest or a fun thing for the whole family!

Everything worth having is worth working for.

Saving for a home of your own can be challenging, but it can be exciting too. The feeling of reward and accomplishment is extraordinary. Start with these steps and very soon you too can enjoy the long term benefits of setting down roots and investing in your future.

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Dear TZ – Can I buy a home without a lot of money to put down?

DEAR TZ – CAN I BUY A HOME WITHOUT A LOT OF MONEY TO PUT DOWN?

Money GraphDear TZ,

After reading all of your advice, we’ve decided it’s time to buy a home. We don’t have a lot saved, but we earn enough to qualify for a mortgage. Can we still buy a home? How much money do we need to put as a down payment?

Thanks!

– Doug and Dina Downpayment

Dear Doug and Dina,

You’d be surprised at how little you actually need to put down.  In fact if either of you are or have been in the military, you might even qualify for a $0 money down loan.  Most FHA products require at least 3.5% down.

In addition to this you will want to have money for closing costs (could be up to $10,000 or more in rare cases), like your attorney, home inspector, survey, title insurance, tank search, etc..  In this part of NJ closing costs usually run less than $5000.  Although some loans will include closing costs as an option.

You could also negotiate for a sellers concession.  This would be an addendum to your puFile:Mortgage-green-bay.jpgrchase contract that states the seller will pay a certain dollar amount at the closing.  These funds can then be used to at your discretion to cover closing costs.

Of course if you have more than 3.5% you can put more money down.  If you can afford to put down 20% or more you will avoid paying PMI (Private Mortgage Insurance) which is removed when you have 20% equity in your home.  An appraisal may be required at that time to determine that you have the equity in your home.

Regardless of what you do, you’ll want to discuss this with your REALTOR(R) as well as your Mortgage Representative.  You may also want to consult with your accountant as well.

Best o luck!

– Wayne and Jean

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