The biggest hurdle when moving from renting to owning your own home is saving the money for a down payment. Saving up enough money to purchase a home takes dedication, sacrifice, and a clear plan.
The average price of a home in the US is roughly $224,000 (Sale Price of Existing Home). Prices have been rising steadily and a home today will cost you about $20,000 more than this time last year. Down payments vary based on your lender and can be anywhere from 3-20% so on a typical home you are looking at anywhere from about $7,000 to $45,000.
The amount required for a down payment varies for many reasons. If you have less than stellar credit you may be required to put more money down. VA loans tend to require less money down. Do know that the more you can put down the better terms you can get on your mortgage.
Once you have determined how much money you need to save here are some simple steps you can take reach your goal.
- Make a budget: Resources such as You Need a Budget (You Need A Budget) or Mint (mint.com) help you quickly and easily put together a budget. Allocate every dollar you make to a category or to saving for your down payment. Seeing where all of your money goes will help you make decisions for the next step.
- Trim costs: Now that you have a budget look at where you are wasting money. Can you make coffee at home instead of buying it every day? Do you like to buy lots of new clothes? Do you pay for parking at work when you could take public transit instead? Consider going on a spending fast and only buy essentials for a couple of months.
- Set up a savings account just for your down payment: All of the money you are saving for your down payment needs to go into its own bank account. Keeping it separate will allow you to watch it grow but will also prevent you from accidentally spending it if it is in your checking account of lumped in with other savings.
- Make your savings automatic: Speaking of savings account, set up an automatic monthly or weekly withdrawal to your special down payment savings account. Have it coincide with when you receive your paycheck, so it happens before you have the chance to spend the money on other things. When you don’t have to think about it and do it every month you will save yourself so much time.
- Save any and all windfalls: Most people receive some extra money each year whether it is a gift, work bonus, or tax return. Make a commitment to yourself to put aside any extra funds you receive towards your down payment. These small lump sums will help your savings grow even faster.
- Downsize: Take a look at your car and current rental home. Can you downsize either or both? Moving to a smaller apartment or buying an older car with no payments can reduce your expenses significantly.
Money, while it will not bring you happiness, will alleviate stress in your life if you have enough of it to provide a roof over your family’s head. Living paycheck to paycheck is both stressful and unfortunately necessary for many in the U.S; however, putting away even the smallest amount of money could make the difference in your life. Even if you are having difficulty saving for a down payment on a home, The Power Is Now is here to help. I stumbled across the most amazing program called the Sapphire Lending Program. It allows one of my clients to get a mortgage without having the money for the down payment. It is the way to get your foot in the door and jump into the successful world of homeownership. Do it now, because the power is now!
Eric Lawrence Frazier, MBA
President and CEO