Down Payment Saving Tips
After being in the mortgage industry for over thirty years, there is one major concern I hear frequently from my clients: will they be able to save up enough for a down payment and closing costs? To many people, the dream of becoming a homeowner seems like it will always be out of reach, but I’m here to tell you otherwise. I’m going to share some tips and tricks you can use to start your journey towards homeownership on the right foot.
Your monthly survival number.
Let’s start with your monthly survival number (MSN). You can access our handy dandy worksheet here! This worksheet will allow you to total your monthly expenditures and find out exactly how much is costs to be you!
Now comes the important part; you are going to want to start paying yourself a mortgage payment on the first of every month. If you’re renting and you estimate that you can afford a mortgage payment that is $300 more than your rent, pay the $300 difference into your savings account. If you can continue to make your MSN work while doing this, congratulations! You’ve just taken two steps towards owning a home: you’ve proved to yourself that the overall dollar amount works within your budget, and you’ve just started your down payment savings!
Technology. Use it!*
*CrossCountry Mortgage in no way endorses or receives compensation from the applications mentioned in this blog. They are referenced strictly for educational purposes. Clients are free to use whatever software they wish.
There are many apps you can use to budget more efficiently. Some people scoff at the idea of these apps, but I’m telling you not to! By inputting certain numbers and tracking simple expenditures, many people notice patterns in their spending they never knew existed. These apps help you categorize your spending, and you can get as granular as you want with these categories. Once you’ve identified any patterns in your spending habits, you may decide to adjust the way you spend your money. Check out apps like Mint, Personal Capital, or YNAB (You Need A Budget).
There are also apps to help you start investing what may seem like a negligible amount of money, but as they say, pennies make a pile! The way most of these apps work is to connect your debit and/or credit card, and automatically round all your purchases up to the next dollar. Some of these apps will invest this “chump change” into a diversified portfolio of low-cost index exchange traded funds (ETFs), while others simply put it into a savings account. Check out apps like Acorns, Chime, and Quapital.
No closing cost options.
While every home loan has fees as part of the financing process, many mortgage programs allow you to roll these costs into the loan or negotiate with the seller to pay them for you.
- Conventional loans: you can negotiate up to 9% in seller concessions based on your down payment amount.
- FHA loans: the seller can pay up to 6% of your closing costs.
- USDA loans: you can finance closing costs depending on the home’s appraised value; you can also negotiate up to 6% in seller concessions.
- VA loans: you can only finance the funding fee, however you can negotiate with the seller to pay up to 4% of the sale price toward your closing cost plus other reasonable and customary loan costs, such as insurance and taxes.
Down payment assistance.
Down payment assistance programs vary by state, but many have wonderful programs available for first-time homebuyers. In the state of Massachusetts, look at both MassHousing and the Massachusetts Housing Partnership ONE Mortgage Program. Many towns considered gateway cities have programs for home buyers making under a certain income qualify for down payment assistance. Generally, this down payment assistance is paid back at a very low, fixed interest rate over the period of fifteen years.
Don’t let costs intimidate you.
Inadequate savings are one of the leading obstacles holding people back from purchasing a home. We don’t want you to feel discouraged because it is possible for you to become a homeowner. Never stop chasing your dreams, especially the dream of homeownership!