Saving for the Down Payment
When buying a home, few things can sound more challenging then saving for the down payment. Anyone can save money but can the average person leave his pot of gold untouched until the minimum down payment is reached? Therein lies the test, the test successful homeowners must pass with flying colors.
The first question homeowners-to-be may ask is, “how much do I have to save?” The answer will, of course be different for everyone, as home prices vary and all loan programs are not created equally. When it comes to buying a home, the more money that is put down, the better off the homeowner. Lending institutions reward those who save money by giving them better interest rates. In short, buyers who have something to lose are much less risky loan candidates than those who waltz into a home without a nickel. Best-case scenario is having 20 percent or more to work with as a minimum down payment. This figure may not sound so bad for those looking at starter homes but for someone interested in say, a home priced at $680,000, this means saving for the down payment of $136,000.
Don't get discouraged when you see what is needed to get into that new home. Facing the known enemy achieves much better results than just pinching pennies in hopes of one day having enough. Sit down and calculate how much time it will take to save enough money needed for the minimum down payment. If contributing $1,600 a month, it will take a little more than seven years to come up with $136,000. Seem too long? Consider adding supplemental income, cutting expenses or selling expensive assets, all of which could get you to your goal more quickly. Keeping your eye on the goal eases the process and constantly reminds you of what you're working towards.
For four weeks, keep a detailed log of every penny spent to determine where money seems to go in your household. Simply writing that $35 was spent at Wal-Mart is not good enough. That money could have been spent on anything from pet supplies, to fast food, to gifts and in-between, so don't forget to explain every purchase. Then, look at your budget and see how much income comes in every month, after taxes. Subtract regular expenses plus the total costs discovered during the month-long spending investigation. If there's money left over, great- that's automatically savings but if not, some reconfiguring needs to be done. Divide spending habits into columns and determine problem areas. It might be that packing snacks or enjoying dinners out only on special occasions is what it takes to fill up that piggy bank. Sometimes a little tweaking is all that's necessary and smart savers won't even feel the pinch.
Some people may still compare saving for the down payment to the crazy old hermit who stuffs money under his mattress. Today's banks and credit unions encourage patrons to save money. They offer all kinds of ways to help homebuyers raise the minimum down payment. Check into your bank's rates and programs for money market accounts and certificate of deposits. Mutual funds are nice for homebuyers who know they will be saving over a long period of time; these generally come with restrictions but higher interest rates. U.S. Savings Bonds are another way of saving money but interest rates change and limitations apply. Research which bonds best suit your needs. Buying a home means taking charge of your financial future and there's no better way to do that than to save money.
Getting the minimum down payment together can build confidence in buyers. To save money is not always easy. It takes discipline and determination but it can prepare savers to be smart homeowners. Saving for the down payment doesn't have to be painful. Just work with what you have and go from there. Buying a home can be a rewarding experience that also teaches valuable life lessons.
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