It's important to keep the possibility in mind that you could be on the hook for other hidden homeownership expenses and plan well in advance. Here's how.
Are you a millennial? Do you dream of owning a home, but keep putting it off? Many millennials (those born between 1980 and 2000) can’t save enough for a down payment. An ApartmentList survey discovered 68 percent of young couples had savings of less than one $1,000 towards a down payment. The rest had no savings at all. Some people truly can’t afford it, while the majority simply do not know how to save money.
Down Payment Requirements
When people first start saving for the down payment on a home, they don’t know how much they will need. One couple started by saving $150 per month. After a year and a half, they had accumulated $2,700. They were pretty excited and added $300 to round it off.
After doing some research, however, they were discouraged to find out they needed 10-percent down at the very least, and 20 percent down if they wanted to avoid mortgage insurance payments and higher loan interest rates. They had hoped to buy a home in the $150,000 price range but quickly realized they were $27,000 short for a 20-percent down payment.
They made some substantial changes, created a budget, and stopped buying things they wanted, purchasing only what they needed. In three months they found they could put $1,900 into savings each month plus whatever they made from their annual yard sale and two craft shows. The first year of the new plan netted the savings account $17,300. Two years later the couple was out shopping for a new home with a healthy down payment in hand. There was also enough money saved to cover incidental fees and closing costs.
Get The Home You Want
Saving money means sacrifice, but the result is the achievement of a dream. Home ownership is an investment and security for the future. Budgeting is essential to save the twenty-percent down that offers the lowest mortgage loan interest rate. The following list includes areas where couples can save money each month towards a down payment. Consider the average yearly cost for the item or activity listed below to see where you can save (amounts vary by location).
- Weekly movie with popcorn and sodas (for two) — $950
- One pack a day smoking habit — $2,373 per person
- Eating lunches out — $1,820 per person
- Eating dinner (for two) out once a week for (one drink included) — $3,120
- One-week vacation (for two) — $2,490
- One cup of coffee ($2.50, although some brands, lattes, and specialty coffees cost more) on the way to work (for two) — $1,300
There are dozens of ways a couple can save for a down payment.
- Choose a cheaper cell phone plan
- Don’t purchase a new phone until it’s needed
- Cut back on clothing purchases
- Settle for a basic cable plan
- Drive your car an extra year or two
These are some ways you can increase the amount you place in savings each month. You can think of others that apply to you.
Stop waiting and start saving. Make a list of expenses that can be reduced or eliminated. You can save a down payment for your home sooner than you expect.