How are you doing saving that down payment for your home purchase? A recent study posted by Zillow reported that saving for a down payment as the largest obstacle for renters wanting to buy a home. And here in Southern California, with high rents and high cost of living it’s even more difficult! So, although you want to become a homeowner – and most believe they will in the next three to five years – how can do it more quickly and start reaping the benefits of home ownership? Here are a few tips:
Get educated on down payment programs – There are numerous down payment options to help you get into a home sooner. Guidelines for conventional loans have loosened and there are options to do as low as 3% down and some even 1% down. There’s also an FHA program for 3.5% down. The hitch to a low down payment is that you will have to pay mortgage insurance which will result in a higher monthly payment, so I encourage you to save up for 20% down, if possible.
Create a budget – Clients often ask me how they can save more money quickly for their down payment and the first piece of advice I offer is to create a budget. Simply, it’s a plan for each dollar you work so hard to earn. Once you have a plan and know where your money is going you can cut back on unnecessary expenses and ‘find’ extra money. Every little bit helps! In fact, we have a free, simple budget worksheet for you to help get started. Click here to download it!
Reduce debt – Half of the people surveyed in the Zillow poll cited their debt burden as an added reason why they haven’t bought a home. If this is you, you’re not alone. Reducing your debt will not only help you qualify for a mortgage easier, it will enable you to save for the down payment much faster. You can quickly pay off debt with some focus and intentionality. Sell stuff you don’t need, do some moonlighting, and reduce household expenses.
Move to a cheaper rental for short period – Common financial advice recommends that our rent or mortgage comprise about 25% of our monthly take home pay; however, for many renters in SoCal you’re paying closer to 50%. No wonder folks have trouble saving for a down payment! If this is you and you are serious about not renting forever, one short-term option is to move to a cheaper place or take in a roommate so that you can save more for your down payment. This may sound drastic, but if you can do it for 12-18 months and then buy your own place, it might be worth it.
Open a ‘special’ savings account – Now, once you’ve got your budget going, you’ve cut debt and expenses, and are earning some extra money, I recommend opening a specially designated savings account I like to call the “Do Not Touch Home Savings Account.” Sock away every extra dime you get your hands on in this account and you will see it grow more quickly toward your down payment goal!
For many markets, including ours here in SoCal, monthly mortgage payments can be more affordable than monthly rent payments, plus you’ll have appreciation working in your favor. It’s the right thing to do for your financial future! It pays to get serious about becoming a homeowner, so buckle down and save up your down payment as quickly as you can. But first, reach out, give me a call or send an email and we can figure out what kind of down payment you need and how much house you can afford.