Saving for a down payment
Your down payment is one of the most important factors when buying a home. Most lenders are looking for a minimum 20% down when qualifying buyers for loans; less than that often requires that you carry mortgage insurance, which adds to your costs. What you put down directly impacts the price of the home you can afford. Since the median sale price of a home in the Northeast exceeds $425,000, that can mean saving up to $80,000. How, exactly, do you do that?
There are really only two strategies that you can apply to grow your savings: increase the money coming in; reduce the money going out. There are several ways to do both. If you are not already tracking your income and expenses, now is the time to begin. Many people don’t realize how much they are spending each month and on what. Paying attention to money you spend on non-essential items and activities could immediately spotlight opportunities to augment your savings.
To increase and manage your inbound revenue, consider these options:
- Automate your savings. You can have a dollar amount deposited with each paycheck into an account set up specifically for this expense. When you automate your savings, you may not even miss the money; if you do, feeling the pinch will motivate you to make changes. You can also sign up to tools like Paribus, which scans your email archives for receipts and issues you refunds on participating partners’ price match policies.
- If your primary source of income is your day job, and you are not self-employed, consider asking for a raise. Understand your employee benefits – many companies reimburse for gym memberships, transit costs, and other expenses, but only if you ask for it. Also, review how much you are allocating to your 401K and your health plan; this may be the time to back off of premium options and set the money aside for your future home instead. You might even consider taking or borrowing from your 401K if the numbers add up.
- Have a side gig. Getting a side job, freelancing in your area of expertise or teaching others how to do what you’re good at, or turning a talent or hobby into a side business can generate extra revenue that you can earmark for your down payment.
- Earn money and gift cards online by answering surveys (clearvoice, mindfield), doing product testing, or participating in apps like Kicks. Shoot for the larger payouts like $25 gift cards to avoid spending your earnings on things you don’t really want. Gift cards earned for retailers like Target, Amazon, Walmart, etc., can be used to buy groceries, clothing, birthday gifts, etc, rather than dipping into your paycheck or your savings.
- Shop your closets and cupboards – clothing closets, linen closets, kitchen cabinets. If you find things you’ve never worn or used, put them to work for you. Sell them online to turn them into cash, or donate them to a charity and be sure to get a receipt that you can use to deduct from your income at tax time and bank the savings.
- A family member can gift you money for/towards your downpayment. There are rules around the amount that can be gifted and the amount you need to provide. Your realtor or loan officer will be able to provide you details.
Whether or not you are able to increase the money coming in, you should also manage your expenses with great care. Renegotiate monthly commitments, discern between needs and wants, and prioritize. If having a home of your own is of primary importance, keep it at the front of your mind with every buying decision. Even the decision to bring instead of buy a cup of coffee every day has impact; the dollars add up, and the exercise of evaluating even the smallest decision is good training for when you are ready to go house shopping. There are bots and apps (Trim, Bloom and Acorns) and websites (PennyHoarder) that can help you achieve your goals.
- Keep track of every dollar you spend for the next month or two, starting today. You’ll begin to see spending patterns that are slowing down your progress. Once you spot them, you can change them.
- Renegotiate: your rent, your insurance, your car payment, your phone/cable/internet plan, your credit card rates. Landlords are happy to make concessions to keep a good tenant, and many service providers are running deals to retain clients rather than lose them to the competition. If you never ask, you are guaranteed to miss opportunities to save.
- Shop with care. If you have never used a coupon or comparison shopped, now is the time for some behavior modification. If there is an opportunity to put money in your own pocket instead of paying it out, grab it. It may take a little more time to prep for shopping, but your goals are important, and there are apps out there to help you find the best deals.
If a 20% down payment is simply out of reach, there are loans that allow for lower deposits - VA loans, Navy Federal Credit Union, USDA loans, low down payment loans that require mortgage insurance, and FHA loans are all options you can consider. Each has its own rules, fees and qualifications, so be sure you fully understand these options by meeting with your realtor or mortgage expert.
Published March 16, 2018 in Buying