As the New Year approaches, many of us are thinking about resolutions and goals. If you dream of leaving behind apartment living and buying a house, here are a few tips on saving money for the daunting down payment.
1) Down-size. It seems backwards, but consider moving to a smaller (or less expensive) place. By cutting down the amount of rent you owe each month, you are taking a chunk out of the biggest monthly expense you have.
2) Open a savings account that is JUST for your down payment. You can nickname the account “dream house” or “my first place”. If you took advice #1, you can put the amount of money you are saving each month in rent directly into this account. Every time you deposit money into this account, you will be one step closer to your dream.
3) Sell your stuff! Thanks to websites like Craigslist, it possible to sell almost anything. Take an inventory of all the stuff you have, and start selling it off. You will be making other people happy by selling them things they want, and you will be able to make deposits into your “Dream house” account.
4) Create, and follow, the dreaded budget. I am as guilty as anyone else about spending too much money on Starbucks and driving when it would be just as easy to take the bus. Figure out what you can live without. Then take the bold step to cut where you can. Funny how a $5 a day latte habit can really add up over the course of the year.
5) Talk to a real estate broker or a mortgage broker. See what kind of down payment you will need for the type of home you want. Determine what your monthly mortgage (plus taxes and insurance) payments will be. Once you know how much you will need for a down payment, you will have a goal number in mind to save.
6) Consider you have already started making mortgage payments. Assume you are currently paying $1,000 in rent. After you had a talk with the lender, you now know that the house you are aiming to buy will have a monthly mortgage payment of $1,450. Start putting aside an additional $450 a month into your down payment account. That benefits you in two ways. First, you have greatly accelerated your down payment savings. Second, you will know with 100% certainty that you are comfortable with paying your estimated new mortgage payment.
These are just a few hints to get you started. If you want more details or a customized plan for saving for your down payment, I would love to take you out for coffee and chat. There I go again, spending too much money on coffee ;).