Purchasing a home is one of the biggest investments most people will make. It takes careful planning and diligence. At times, the process can seem stressful. However, home ownership provides a sense of pride and gratification for many. In recent years, home ownership took a dramatic turn. Inflated prices and greed quickly elevated the market to outrageous levels and as quickly as it rose, it fell.
Today, banks are more reluctant and have put more stringent standards in place for prospective buyers. A down payment of 20% seems to be the going rate to acquire a loan. This figure can be astronomical for individuals with a modest income. Even though the task may seem insurmountable, a little patience and discipline will yield handsome financial returns in very little time. Here’s how you can save for a down payment:
Down Payment Savings Tips
Most people will not buy their dream home on the very first purchase. This is a process. It is more important to purchase a property that comfortably fits within the budget. This may limit choices to condominiums or townhomes, but as the property builds equity, it generates resources toward larger purchases.
Set a Working Budget
Save a minimum of 15% of income (gross, if possible). This requires discipline and may result in delayed gratification for some of life’s little pleasures. Short vacations, bag lunches, used cars and prepaid cell phones make savings possible. Many people regularly pay $300 – $500 per month for cell phone and cable television service.
Many employers will pay time and a half or double time for overtime shifts. In addition to standard 15% savings, all overtime compensation should be allocated toward the future purchase. Part time work also provides additional savings toward the down payment. Commission based and residual income jobs have no income ceiling. However, there is a learning curve that may produce very little revenue. Residual money provides a steady income stream long after the work has been done.
Investigate Government Programs
There are many programs to help first time home buyers. These programs may provide incentives that require small down payments, lower interest rates, or matching dollar programs. Teachers and government officials may qualify for special programs that encourage ownership in revitalized neighborhoods. Even though these programs may require a specified time of ownership before resale, all home values increase and provide owners with equity to be used at the owner’s discretion. Military personnel may also qualify for special ownership programs.
Depending upon the seller’s motivation, he or she may offer to cover a portion of the down payment or closing costs. It is worth negotiating as part of the sale. Purchase prices are not set in stone.
Prospective owners must determine home purchase on base income. Many people forecast purchases based on income and current overtime. If the mortgage cannot be comfortably maintained on income alone, it is too expensive. Unfortunately, much of the current housing market was based on creative funding that was doomed to fail. A solid game plan always wins.