At one time, owning your own home was the American dream AND America wanted to help that be achieved. With no down payments and low interest rates things looked really good. Especially to those buyers who had no down payment and were able to purchase a house well above their means. And then came the “Housing Crash of 2007” which was named the worst housing crash and was said to have caused the U.S. to experience a near depression liken to the Great Depression. Finance laws began to stiffen and the American dream seemed impossible to achieve.
With determination and a plan, owning your own home is still achievable. Best practice is to consult your financial advisor for an overview of your financial goals and to contact a Mortgage Lender before home shopping. Searching for a home can become an emotional process, it is best to make way for those emotions by establishing hard facts. What is affordable to you? How much do you need for a down payment?
What is affordable to you? How much do you need for a down payment?
There are many different loan programs available and your Mortgage Specialist can help you identify which one is best for you. Perhaps one will match your needs that does not require a down payment or one that requires a small down payment. Whether it is 0% down or 20% down it has to come from somewhere.
Mid-America Mortgage Senior Loan Officer, Laurie Tatich says, “Typically, your down payment money to purchase a home comes from monies that are your own, whether in your back account currently or in some sort of a retirement account. Gifts from family members may also be a source used.”
Here are FIVE ways to save for a down payment.
Open a savings account.
1. Open a savings account. This may seem obvious, but opening a savings account specifically marked for a down payment will earn you interest, as well as give you flexibility with direct deposit from your paycheck.
Set a budget.
2. Set a budget. This takes time and a reality check along the way, but is completely worth it. According to www.smartasset.com, “one rule of thumb to follow is the 36% rule. The 36% rule says that your total debt payments should never add up to more than 36% of your gross (i.e. pre-tax) income.”
Let’s say you are paying 25% of your current gross income on your current housing situation…you can set aside 11% in savings to go towards your down payment. In the future you may be paying 36% so why not learn to live on 64% for everything else?
With the end-game of home ownership in sight, setting a budget and sticking to it is worth it!
Pay off debt.
3. Pay off debt. Your credit and qualification for a home loan depend on your debt to income ration. Paying off debt will improve your credit, as well as free up money to tuck back into savings. Debt can be paid down aggressively and smartly. Your financial advisor can help you decide what is the best method.
Unplanned income means more money in savings.
4. Unplanned income means more money in savings. Grandma gave you $20 for your birthday? Save it. It’s your birthday so you think you deserve a latte? NO! You deserve a HOUSE! A few dollars might not seem like a lot in the whole scheme of things, but with interest added onto your Andrew Jackson it can add up. The goal is what the focus needs to be on, not that quick temporary fix of an expensive latte.
5. Be thrifty. Big expenses leading up to your home purchase are a bad idea. Your lender will want them explained, your credit might be questioned, and if your goal is a lake house, why would you buy two snowmobiles? Delay gratification on major purchases and wait until you get settled into your home. Put that money into savings. I guarantee those “once in a lifetime deals” don’t just occur once in a lifetime.
Bottom line, whether or not you get approved for a program that requires a down payment, when home ownership is your goal, it is best to save as much as possible. You never know what finances will be required along the way (eek! They found a leaky roof in the inspection!).
Mortgage Specialists like Laurie Tatich are here to help! Laurie can be contacted at Laurie.Tatich@MidAmericaMortgage.com. As your trusted Real Estate Broker, my job is to help you achieve your dreams, if you would like more ideas or help in finding that home, contact me at firstname.lastname@example.org or 574-265-8471. You can also find me on the web at emilyshipley.com where all those fun social media links are!