Deciding to buy a home requires down-payment savings as a goal that is attainable. For most, this presents difficulty. With everyday costs of living saving often is overlooked. In order to save for a down-payment a buyer has to make this task as important as daily living costs. For starter’s before any budget can be planned a goal amount must be established.
In the United States there are several options for obtaining lending. The most popular is use of FHA lending. This loan backing option offers the advantage of a lowered amount needed for down-payment than a conventional loan. Usually with FHA backing you may need to come up with as little as 3.5 percent of the selling price of the home you wish to buy. This is a significant difference of 10 percent usually required for a home you will reside in for a conventional loan. For example, a $100,000 house would only require $3,000 as a down-payment. Whereas a conventional 90/10 loan would require $10,000. A purchase that eliminates PMI would require $20,000 down on a conventional loan of 80/20.
To determine the amount you need to budget based on FHA lending is fairly easy. To get this figure you would simply multiply the cost of the average house in the areas you like by 3.5%. If you are planning to avoid PMI payments which are required by FHA lending, the down-payment will be higher. For conventional lending simply multiply the average selling price of houses in the areas you like by 10 or 20 percent based on the loan to value selected.
Now that you have the amount you need to save, it’s time to make a plan on how you will get the amount needed. Using the purchase price of a house that sells for $225,000 is a good price range for middle income households. So for a house that sells for this price you would need a down-payment of $7,875 if using FHA lending. Let’s suppose you want to buy your house in two years. That means monthly you would have to set aside $329 per month. While this may seem like a large amount it can give you an idea for making adjustments on the money often wasted on non-necessity items. Entertainment and eating out often times use near this amount without any thought monthly for some. If this number is too much extend the length of time by another year or two. Three years would require $219 per month saved. Four years for would be $164 a month set aside.
Once you decide what you can afford monthly, consider talking to your landlord about changing your lease terms. For example, if you know it will take 4 years to save the amount, ask your landlord to consider giving you a lower rate of monthly rent if you agree to a 4 year lease term. Using an employers option to directly deposit a set amount to a savings account each pay period can improve your chances of saving. If you take trips annually consider foregoing the trips for the next 4 years and place this money in a savings account towards the down-payment amount. If your credit is fairly good consider consolidating credit cards to a lower payment using a credit union personal loan if it offers lower interest. Only use credit cards for necessity purchases not leisure and luxury items. The common downfall for most consumers is they fail to take time to place proper value on the items they receive for their money spent. Buying something that increases your net asset values contribute to your buying power. On the other hand buying items that quickly depreciate in value decrease your net asset values.
Finding a partner to encourage you to reach your goals can be helpful too! Some real estate agents such as myself take pride in checking in with my clients at regular intervals to keep them on track with reaching their goals. If you would like to learn about programs that you may qualify for where no down-payment is needed, contact me by CLICKING HERE.
One other way is utilizing your current assets to increase your funds by investing them. There are lots of financial advisers that can help in this area. CLICK HERE for one that I recommend.