Build a Down Payment in 1 Year-3 Years-5 Years
I had a conversation with a friend recently. He tells me that he graduated from college, got his first job, and married. “My wife and I figured out how to save for our first house. Our first house was about 2,000 square feet, two story 2BR, 1BA house, and the house cost $14,250. We put 20% down from some leftover college funds, about $3,000, and we were homeowners. Today the same house in Kansas City would cost over $250,000.” How do you build a down payment in 1 Year-3 Years-5 Years when the down payment of 20% would be $50,000?
You may realize that he’s old. He’s so old that he walked miles to school, in the waist-high snow, uphill both ways with a Pee-Chee to fight off the bears. A Pee-Chee was a yellow-brown folder used for homework and important papers his parents needed to sign. On the outside were pictures of football players and cheerleaders and school scenes that he filled in with pen and ink or doodled on about his girlfriend.
The big question is How Do You Build A Down Payment In 1 Year-3 Years-5 Years
Here is what Trulia suggests:
- A 20% down payment is a great savings goal, but it’s also a lot of cash.
- Building a savings fund of $50,000 in 12 months will require you to set aside $4,167 per month and take some extreme measures to make it happen
- Save for a down payment in three years. While it’s still an ambitious savings goal (you’ll need to save $1,389 per month), your approach won’t need to be quite as extreme. However, the basic steps remain the same: Cut unnecessary costs and look to increase your income so you have more cash to save.
- This timeline gives you the most flexibility in saving your $50,000 down payment. You’ll need to save about $834 per month to meet this goal. It’s still a lot of money but completely doable if you’re willing to cut back in places you currently spend.
- Establish a savings account and put 10% of your take home pay in the account every month. It’s called “Pay yourself first!” When you have six-months of living expenses saved up, start a house fund. Continue to put 10% of your take home pay in your house account.
- Don’t go into debt or if you have a credit card, pay it off every month. Only use a third of your credit available.
- Post pictures of a house you desire on the fridge, bathroom mirror and in your wallet. That’s your goal and it will help you focus on the house to the exclusion of luxury items.
- Sell stuff on eBay.
Look at every single dollar you can cut from your current spending.
- Construct a budget and stick to it. Go through the items you buy each month and ask if you really need all the channels on cable, to dine out as often, eat lunch out instead of brown-bagging it.
- Cut back or eliminate cigarettes and alcohol from your budget.
- Ask your service providers, insurance companies, and cell phone carriers for cheaper rates.
- When you are ready to buy a house, make sure your FICO or credit score is immaculate. One in five has some problem or error that can be eliminated.
Don’t seek a minimum-down house. That low equity loan encourages you to buy more house than you can afford. Stick to a 20% down and then only get a 15-year mortgage. You save a huge amount of interest.
Once you have secured a 15-year mortgage, read about the ways you can pay off that mortgage in less than five years by making extra payments each month.
When I was a kid, homeowners would have a party when the mortgage was paid off. It’s a tradition we need to bring back.
Terra Firma Property Solutions, LLC is a professional, full-service real estate solutions firm.
We buy and sell properties throughout the greater Kansas City area. We specialize in buying distressed homes, then renovating and reselling them to home buyers and landlords. Terra Firma Property Solutions is excited to be part of the economic rejuvenation of Kansas City and its surrounding areas.
Call us today at (816) 866.0566
