Down Pmt Savings Strategies
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| Tue, 04-12-2005 - 12:26pm |
I've been reading this board (and learning) for several weeks now. Thanks to all posters who have contributed to my increased motivation to improve my financial situation.
My debt load is not horrendous, but I'm working to chip away at it. My most urgent financial goal right now is saving $ for a house down payment. I would love to be able to get out of the quasi-run down place I'm renting now. The only reason I stay there is the perfect location--just around the corner from my kids' schools in a nice family neighborhood. Renting feels like throwing $ away. But even a 10% down payment is such a huge number to me--I don't know how I'd ever get there!
My question to ya'll is: How did you manage to save a big $ amount for a house? I'd appreciate it if you would share some successful strategies and warn me of things I should avoid.
What worked? What didn't work?
Cupcake

All my best,
Danni
I want to own a home too, and I could use some saving strategies :)
But I don't agree that renting is throwing away money. I pay $1,000 per month in rent, and with principal, interest and taxes on a small townhome I would be paying at least $1,600 per month. I figured out (using lots of assumptions) what I would have in say 10 years if I invested that extra $600 per month or if I bought a home and let it appreciate. I think I would be in about the same place financially either way. When you own, a lot of money goes out the door for taxes and upkeep that you don't have to spend when you rent, and you don't get any benefit for down the road, even when you offset those expenses against the income tax savings, you still have to pay that interest in the first place and that is cash down the drain too. Houses do appreciate and are usually a good investment, but there are other investments out there and in a well diversified portfolio your money is likely to grow as well. I think either way I'll win.
One article I saw once said to figure out what you would spend on a mortgage, taxes, and upkeep, and let's say that is $300 per month more than the rent you pay today. Force yourself to save that $300 every month no matter what. If you can do it, then you know you will be able to afford to be a home owner and you'll have some money saved up to buy one.
Of course, if housing prices are good in you area and you are paying the same in rent that you would owning a home, they buy a house as fast as you possibly can!
I pay what I think is very reasonable rent amount considering the neighborhood. The problem is that there are very few rental homes available. I've looked periodically and can't find anything better for the same money. I have three kids and need space. The location of the house I'm in is perfect, but the house is 30+ years old, has been a rental for a long time and needs some serious updating...I've got torn wallpaper, 70's bathrooms, worn linoleum, 70's dark panelling...etc. I'm happy with the $ outlay for shelter, but not happy with the physical place. I guess I'm very into the American dream of home ownership. I'm not inclined to spend any more of my $ to update this place. I've already replaced shrubs, light fixtures, hardware, painted, etc., out of my pocket...my landlord is a jerk and won't do anything unless it's like a broken appliance, and then I get the absolute cheapest model (got a terrible replacement when the 30 year old oven died) or a "band-aid" fix that doen't really satisfy. That's the main problem with renting for me. In Houston, home prices are really modest compared to the rest of the country, so I really want to buy and be able to do whatever I want to to the place. I just get discouraged when I think of how long it will take to save a significant amount. I've heard of 100% financing, but don't know how it works. I probably need to improve my credit score, too, due to divorce damage, before trying for a mortgage.
Praying for patience,
Cupcake
Thanks for the input, I've heard of people doing what you've done. Prices here in Houston are pretty stable, maybe even falling in some areas--can you only do this in an area where prices are rising? Also, my credit is less than perfect due to divorce damage. Do you still have to do PMI? What did you do about closing costs?
I'm gonna have to start doing some research with mortgage lenders.
Cupcake
Hi there,
I'll be closing on our first home at the end of this month!
This is how we managed to get into a house a few months after becoming debt-free last year:
I calculated the amount we paid for rent versus what the likely mortgage payment would be plus property taxes and saved the difference plus whatever else we could muster.
We had also from our debt-paydown days gotten used to reducing unnecessary expenses; we began to finally live below our means without feeling too deprived.
Also we decided to utilize a less often used RRSP strategy in Canada.
Most people if eligible can borrow from their non-locked in Retirement Savings via the Home Buyers' Plan which we did but with a twist :)
My dh and I both had nearly $20K in unused contribution room so the bank who approved our mortgage gave us each a $20K loan; they allowed us to pay only the interest for three months on the loan.
We each declared our $20K RRSP contribution on our 2004 income tax declaration and got back a very, very big tax refund this past March.
Then we held the $20K in our RRSP for the minimum 90 days (in order to be able to use the deduction for taxes) and then withdrew the funds via the Home Buyers Plan and used most of the proceeds to repay the bank the original loan amount (no strings on how one can use the funds withdrawn - they just have to prove they bought a house).
A BIG loophole that I'm sure the Feds will soon plug :)
We now each owe our RRSP the $20K which is payable over 15 years.
The beauty is that we used the bank's money to get that extra huge tax refund from the govt. Two birds with one stone :)
Yes we owe $20K but it's interest free payable to our retirement fund, we used the contribution room we had that otherwise might have taken forever to use up and we haven't lost growth on the withdrawal because it wasn't like the money was held in our RRSP over several years.
Suffice it to say I'm not sure if you can do something like this in the U.S. but sometimes "thinking outside the box" can make the difference. Also, even if we didn't do the above we had enough saved for the 5% downpayment plus closing costs.
Best of luck to you!
Kassandra
Kassandra
"It is said that life has its peaks and valleys. The challenge is to accept them equally and experience them
I do believe that 100% financing requires very good credit.
All my best,
Danni
I'm all for mortgage broekrs, but I agree with Danni- find someone through word-of-mouth/referral and not just because of some commercial on the radio.
Mortgage borkers are great because they know a good number of housing programs including a number of first time buyer and low income programs.
I believe there is an association of mortgage brokers that has a database online. You can also call and ask. But they could at least let you know if 1) you can afford a house now, 2) what programs you qualify for, and 3) what things you can do to reach your goal sooner.
The only other thing I would warn you about is make sure you can buy the house you can AFFORD and not what you QUALIFY for. They are NOT the same thing!!!
Gidget
"The only other thing I would warn you about is make sure you can buy the house you can AFFORD and not what you QUALIFY for. They are NOT the same thing!!!"
Excellent point Gidget!
All my best,
Danni
"But I don't agree that renting is throwing away money. I pay $1,000 per month in rent, and with principal, interest ........"
Thank you for saying that, First Amendment! I have been saying the same thing, and lots of folks don't get it..... Also, I'm just not ready to own anything, just don't want to deal with the responsibility, and so I am happy to pay for my apartment. (one day I'll own, but not now.)
Littlesbigs