Simple (but crucial!) things to remember about Down Payments

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Last time, we talked about the importance of having a down payment when purchasing a new home (click here to review that post.) Although there is no hard-and-fast rule about how much a down payment “should” be, we recommend 20% since most lenders will not require you to buy Private Mortgage Insurance (PMI) if you put 20% down.

How much are we talking about, here?

First let’s talk about how to calculate your down payment. If you are trying to decide how much you need to save, then you can use this calculation:

$[cost of the home] x [0.2] = $[20% down payment]
For example: $100,000 x 0.2 = $20,000

However, you may be working from the other side of the equation. Perhaps you are selling a home, and will be able to use some proceeds from the sale as your down payment. In this case, this is the equation you need:

$[amount of down payment] ÷ $[cost of the home] x 100 = [percentage]%
For example: $20,000 ÷ $100,000 x 100 = 20%

Once you know how much your goal is for your down payment, the hard work begins! Remember that home ownership is a huge investment, and your down payment is likely to be tens of thousands of dollars. It’s important to have a goal, and a plan. Your dream is worth every bead of sweat you put into it! You can do this!

First thing first!

Our first recommendation is to create a budget for your household. Simply put, a budget tracks your income and your expenses. It lets you know what money you have available. And it helps you decide where you can reasonably cut back so that you can “find” money to save towards your down payment.

While a simple spreadsheet can function as your budget, there are also numerous apps available. Just do a search in your app store of choice, and see what fits your style. And if you have no idea where to start, a simple internet search will provide you with a bunch of advice and templates to work from.
A budget also comes in handy when you’re thinking about your mortgage in general. It’s very easy to buy “too much house”, but if you track your income and expenses for a few months, you’ll know whether your monthly mortgage payment is affordable.

By using this simple tool you can design a clear path towards your goal. With a budget, you can intentionally put money towards your dream!

Out of sight, out of mind

Having a budget means you have complete control over your income and expenses. Now you can confidently put money into savings each month. Most banks allow you to schedule automatic transfers between your checking and savings account, as long as both accounts are housed with the same institution. Automatic transfers will add up fast, especially since you don’t have to think about it!

Just as there are multiple ways to calculate your down payment, you can calculate the monthly amount to save in a couple of ways.

·      What’s left in your budget after necessary expenses are met
o   This method works best if you are still in the dreaming stage. It’s never too early to start saving!

·     Your goal amount, divided by the amount of time you have to save
o   $20,000 ÷ 10 months = $2,000 per month

Other sacrifices

It can be hard to think about making sacrifices. But if you keep your dream of home ownership front and center in your mind, you can keep perspective. Here are just a few ideas that really add up!
·     
         Cut out some expenses from your budget.
o   The gym, eating out, cable t.v… There are lots of nice-to-have things to give up for the short term while saving for your down payment.
·   
         Reduce other expenses
o   Not everything can be cut out altogether. Find ways to save money on utility bills, grocery costs, your cell phone data plan, and clothing expenses.
·    
        Skip your vacation this year.
o   According to Forbes, “On average, Americans spend 10% of their annual income on vacations.” Instead of using that dough on a one week getaway, put it towards your dream home!
·
         Get a second job.
o   Side hustles are becoming increasingly common. You can even make extra money from the comfort of your [current] home. Type in “side hustle” into your search engine to get a world of ideas!

It might not be easy…

… but it’s so worth it! Our last tip is to find an accountability partner. Maybe this is your spouse or a good friend who can help you stay on track. Your accountability partner can help you remember why you’re working so hard to save that money. It’s a long game, and it will pay off in the end!

Please contact us if you have questions or are in the market to buy or sell a house. Let us be your Real Estate SOULution!

www.ibuylouisianahomes.com     225-800-4445


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