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Get 20 tips and ideas for saving for a down payment to purchase your very first home or condo. You might get a tip you did not consider before! Saving a large sum of money could be challenging, but not impossible with the proper tools and knowledge.
If you answered YES to any of these questions, this article is perfect for you to keep reading!
Housing prices have soared over the years, but income levels have not kept up accordingly. In other words, if incomes have increased by 5% over the past five years and housing prices have increased by 20%, then it is far more difficult to afford a home based on typical middle-class salaries. In a June 2020 article on Forbes.com, it was noted that it could take up to 21 years to save for a 20% down payment to purchase a home. The 20% down payment is what most lenders prefer that buyers bring, but because it is so difficult and time-consuming to save, there are some other options. For example, lenders are offering a 3%-down-payment option or a 5% option if buyers qualify. But even 3% or 5% can be difficult to save in a short time.
In June of 2020, median home prices in the United States were at $295,300. To save for a 3% down payment, buyers have to come up with $8,859. A five percent down payment is $14,765. There are other costs associated with purchasing a home. Having just $8,859 is not enough to purchase and get in. There are some costs the buyer is responsible for paying, and lenders typically prefer that you have 3 months' worth of money in your savings or checking account as a cushion. In other words, if your mortgage payment composed of principal, interest, taxes, and insurance is $1832 per month, lenders want to see at least $5496 in your accounts. There are other costs, too, such as:
Moving costs
Money for small repairs and changes to the home (if needed)
Escrow fees
Mortgage insurance (if needed)
Homeowner and hazard insurance
And more
Here are some interesting facts and data concerning home buying:
61% of home buyers are between 30-39 years of age and have at least 1 child under 18.
On average, buyers spend 10 weeks searching for a home to buy.
The most unaffordable areas to purchase homes are in the Los Angeles metro areas, where only 12.7% of people can buy based on their median incomes.
The majority of home buyers have an average income of $100,000 to $125,000 per year.
People report buying a home for multigenerational purposes (living with other family members) to have enough room to have an agent parent live with them (health/caregiving of aging parent).
The main reasons people report purchasing a home include:
Hawaii has the highest median home value at approximately $647,000. Conversely, the lowest median home value is in West Virginia at $107,000.
Housing inventory is at a historic low. In June 2020, there were 18% fewer homes on the market selling than in June 2019. Due to low inventory, prices are going up in many desirable areas.
There could be a big difference in home values within the same state, depending on where the buyer desires to purchase. For example, median home values in Los Angeles are about $753,000, but overall in the state, average home values are at $579,000.
If there is a strong will and desire to purchase, saving for a down payment may be challenging but not impossible. Several factors are involved in the saving plan:
Saving to buy a home is possible, even in highly desirable areas; however, based on the factors mentioned, a buyer must ask himself the following questions:
Many of these questions can be answered with the help of a real estate agent or the home loan team at your banking institution. They are the experts who can give you the majority of the answers you seek. Based on your income, they can tell you how much you need to save to purchase a home.
Once you know exactly how much you need to save, by when, and you narrow down your search area, write a SMART goal. Put that goal somewhere prominent so you can see it each day or each week to remind you to stay on course with your goal & aspiration. Here are some examples of home-buying SMART goals:
The SMART goal is realistic, has an actual number - exact amount associated with it - and has a deadline to meet. To set the goal, you write the exact action plans you can take to achieve the goal. The action plans help you stay organized and efficient with your goal setting and personal finances. In addition, they help you manage your time effectively to come through with your plans. Use this form to stay organized with your personal financial goals.
There are some strategies, tips, and techniques you can employ to save money toward the down payment of a new home. Use some of these strategies listed as a checklist to help you get started and get going after setting the exact SMART goal. These strategies help you stay organized with the process, timely, and efficient.
1) Cut cable and use just 1 or 2 streaming services to save money each month. Instead, deposit that $100 or so that would go toward the cable bill can go toward saving. Over the course of 12 months, that will add up to at least $1,200!
2) Instead of a big vacation trip, plan a few short getaways. For example, a vacation for two may cost $3,000 or more. However, a short getaway where you stay in a mid-level hotel and drive to the location would cost about $500. That's a $2,500 savings per year or more!
3) Refrain from giving large gifts to friends and family or for holidays. For a couple of years, give homemade gifts or cards. If your friends and family understand your ultimate personal financial goals, they will not frown upon you for not investing in an expensive gift. Instead, they will be understanding and supportive!
4) Strongly consider getting a part-time side job or ways in which you can make small amounts of money from home. For example, you can be a survey-taker, Uber or Lyft driver, retail worker, virtual assistant, or proofreader. These jobs do not require a large investment into the business and help you yield income.
5) Eat food from restaurants only once each week. Doing so can help you save at least $25 per week. In the course of 1 year, the total savings will be over $1,300.
6) Buy clothes and necessary furniture or appliances from second-hand stores.
7) If you have the experience and skills necessary, consider applying for a promotion or a higher-paying job. Perhaps, a goal to purchase a home will give you that push you need to get the confidence to go for the promotional opportunities you have been holding off.
8) If you are currently renting, consider downsizing to a smaller apartment. It may be tight to live in those conditions for a while, but well worth it if you can save the money and move to a large home soon!
9) Move in with family members who have room in their homes. They typically will not ask you to pay rent or will ask for a minimal amount. You can use the money saved to add to your overall savings. It may be uncomfortable for a while but just remember, it's temporary until you have enough saved to purchase your own home!
10) Become as much of a minimalist as possible. In other words, sell things that you own that you do not use often. If you have a Kitchen Aid mixer that you use only once a year or a hat you only wear once a year, sell them online! Put the money you get into the savings account.
11) Ask the mortgage consultant or banking institution for your credit score. If your score is over 700, you are in pretty good shape! If the score is above 750, you're in excellent shape! Research ways in which you can raise your credit scores. Sometimes, small things that you may not be aware of will help you achieve a higher score that could increase your buying power. There are free apps like Credit Karma that would update your score every week.
12) All bonuses and extra money that comes in, like birthdays, holidays, and tax refunds, must go into the savings account. You can either use the money to pay off the debt that will free up money each month to save for a house or put it aside in the account you are saving.
13) Budget for everything! Set a budget for food, car expenses, utilities, clothes, household items, telephone, and other monthly expenses. Doing so will help you live with a financial plan each month, so you do not run into overspending. The sooner you establish a budget, the better to control your spending. You can use your own forms for budgeting or get the one that's available on efficiencyandorganization.com.
14) Keep reminding yourself every week that your life may feel deprived, but it's only temporary until you achieve your financial goal! Trick your brain to see the bright side and the light at the end of the tunnel.
15) Cut back on personal care items, like expensive cosmetics, going to beauty salons to have hair dyed, etc. If you go to massages every few weeks, that must be up on hold temporarily. Learn to do as much as you can on your own at home before getting personal care services.
16) Cut telephone bills by paying for your telephone upfront. Unless the telephone breaks and becomes dysfunctional, do not get a new one. It's unnecessary to get the latest and greatest model telephone if you are trying to save money.
17) If your parents or grandparents have many things in their garage or storage units that they want to get rid of, ask them if you can help sell them, but keep 75% of the profit. It may be a little bit of work and effort to sell the items, but it will be nice to generate some additional income and help your family declutter!
18) Save cost on gasoline as much as possible. One way you can do this is by having store lists made so you can go shopping with a definite plan. For example, you can have a list for Target, a list for a grocery store, a list for Walmart, and a list for PetSmart. If there is no emergency need, do not go until you absolutely need to. We often run to the store for one thing, then the next day, we see we need something else and make another run. Doing this wastes gas, time, and energy. Having an overall organization will help us become efficient, save time, save money, and be less stressed in life.
19) Have almost all major debt paid off before pursuing buying a new home. If you have a large debt, focus on paying that off first before saving for a down payment. By doing this, the money that goes toward credit cards and other loans each month will go toward a down payment. Also, lenders do not want you to have many debts when you are borrowing money for a home loan. Your debt-to-income ratio goes up due to your debts, so the sooner you can get those paid off, the better. Even paying off a car is a good idea before saving for a home.
20) If something is not an emergency, don't buy it. Every single purchase must be scrutinized when you are in saving mode. For example, you want to purchase a book from Amazon. Can you check it out from the library instead? Can you buy it used? Can you read it for free? Can you borrow it? Small purchases really add up to hundreds of dollars! Another example is cookware. What you have may be falling apart, but can you get by for another couple of years, or do you have to replace them? Ask yourself these important questions every time you are making a purchase.
Saving for a down payment to purchase a home is challenging but possible. Once you reach the goal and get in your first home, it's one of the best feelings you can ever experience - the feeling of achievement and success! Every great goal requires some sacrifice to be made. In this case, you have to sacrifice your comfort and some of the pleasures that life has to offer, just for a while until your savings goal is reached.
Here is an infographic with some of the strategies mentioned in this article for easy reading and review.
Remember that it all begins with a SMART goal: Decide how much you will need after talking to a professional, when you need it, and get going! Monitor your goal by printing the SMART goal worksheet and keeping it in places you frequently visit, like your office, workspace, bedroom, and even restroom. Have the goal posted as a frequent reminder to stay on course and not give up.
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Ruzanna Krdilyan Hernandez, Ed.D. is an award-winning educator and content creator writing books/articles on efficiency, organizing skills, productivity, goal-setting, time management, planning, self-development, and achieving more in life. Hernandez is the author of efficiencyandorganization.com, which focuses on six areas:
She writes in these focus areas on how people in every aspect of life can achieve more by being more organized and efficient with their processes to become consistent, timely, and successful. She is an expert and a lifelong learner of organization, time management, personal efficiency, and goal achievement. This article shares some of her strategies and other researched and proven tips, techniques, and strategies. The book, Efficiency and Organization, is available on Amazon. Her second book, Organization and Efficiency in Personal Finances, is also released and available on Amazon. Efficiency and Organization's YouTube channel has over 80 helpful videos.
Disclaimer: As an Amazon Associate, I get earnings on qualified purchases.
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