From time to time I run into clients that want nothing more than to get into a house yesterday so they can stop paying rent and start investing in themselves. While these good folks are strong buyers in terms of their credit, they cannot purchase because they are short on initial down payment for a first time buyer, which is 5% of the purchase price. Not only that, the buyer also needs to have the closing costs in place on top of that. The thought of this is overwhelming to some, and can unfortunately be a detriment to others who think they will NEVER be able to save that much in order to buy!
Well, believe it or not, a lot of us have been in this position and it really sucks – but it’s not the end of the world. It just may be the end of your willy-nilly spending for a while. Here are some ideas that may help you get your down payment on track:
- First and probably the last thing anyone wants to hear; move back in with your folks if they will have you… Offer to pay them some rent in exchange for a roof over your head. The best way to think of it would be a ‘short term pain for long term gain’ situation. If you save $600.00 or so dollars a month that adds up to $7200.00/year you can add to your down payment.
- Look at your current rental situation and see if it is down gradable. Meaning, if you are in a 2 bedroom, could you move down to a 1 bedroom or a bachelor unit for a while? The potential to save $200.00-$400.00 a month is there for you which turns into a descent contribution to your goal.
- Sell your car and use public transportation or a bicycle. Of course, this is a tough one for some people since owning a vehicle and being able to go wherever they want whenever they want is crucial. If you eliminate a car payment as well as consider the savings on fuel and insurance the savings could be close to 8K a year depending on the type of vehicle you are driving. If your current vehicle is paid off, just savings on insurance and fuel could be about 3K a year.
- Eliminate the conveniences of gourmet coffees or buying lunches a few times a week. Instead, pick up some groceries and some coffee beans and make your own lunches and gourmet coffees at home instead. Eliminating a few take out meals and expensive coffees a week could save you approximately $1700.00.
- Choose a stay-cation instead of a vacation. This is a pretty straightforward point. Flight/fuel, hotel, food, seeing the sights all add up. Choosing to spend your time locally could save you 2K-3K to add to your down payment.
- Cut out cable at home and use Internet streaming services if you can do it. The savings on this point alone could be over $1100.00 a year and I know from experience that you really wont miss much.
- Go out less or just spend less when you do go out… I know, I know – Pete, you are turning me into a hermit. This is not true; I am helping you help yourself! It’s expensive to go out these days. If you can cut your spending in half from $500.00 to $250.00 a month, you are putting 3K in your pocket and towards your house warming party!
If you did tighten the screws on you’re spending by following these points above, you could be on your way to a healthy down payment in 18-24 months! That’s no time in the grand scheme of things, don’t you think?!
The real truth is, is that these points above are all ways that are actually going to also prepare you for being a homeowner. Once you have accomplished your dream and have purchased your own home, you will start doing these naturally because there will be no place you would rather be than in your own home, making it yours and enjoying your life and your privacy.