Building A Down Payment
Some home buyers simply cannot qualify for a down payment assistance grant. Others simply may not be able to find a seller willing to use a 501c3 Charity to create a down payment. So what should you do if you find yourself in this situation?
The first option is really driven by your credit. There are plenty of programs that allow 100% financing and even up to 106% financing for home buyers. Whether they are in the form of a single loan, or they are a 80% first mortgage and tied to a 20% second mortgage. If you qualify for this type of product, and the payments fit your budget, then consider this option, but only after applying good sense to the problem and the resulting mortgage payment.
The last thing any home buyer wants is to pay a bunch of different companies for the privilege of being foreclosed on in 8 to 12 months. Sometimes, the best solution is to wait, plan then act.
As a side note. If you own your own land already, and you plan to build your home on this land, the equity contained within the land can in fact act as your down payment. If this is you, and the equity amount is sufficient, you have your down payment.
Whether you are single or a two member household, saving a downpayment is one of the hardest things to do. Why? Many of us have never been taught how to save. Saving takes a combined commitment to a goal and a sacrifice in wants. This means going without that new “Hip” wardrobe or that latest high tech $300.00 cellular phone. Or maybe it’s that cool palm pilot? Saving means budgeting and sacrifice. Going without for the short term for the long term gain of a desired goal.
The average home buyer will typically need a down payment of about 11% of the planned purchase price in order to close. This figure accounts for closing costs, which can be negotiated with the seller. If you are planning your home purchase it is perfectly natural to say, “I want the seller to pay 6% toward my closing costs.” This is well and good, but don’t bank on it. Take a shot when you reach 5%, but be prepared to save another 6%.
So lets consider how we achieve the downpayment. We spend a lifetime paying others. Whether it’s the electric bill, the water, the cable, the car payment and so many others. You work 40 to 50 hours a week or more, yet you never pay yourself? It’s time to start paying yourself first, before you budget your other expenses.
This is saving.
If you have difficulty doing this, think of it in terms of wanting to buy a 52″ HD color TV so badly you can taste it. How many hoops would you jump through to acquire that thing you can taste but don’t yet have? You need to want your down payment as badly as you want to own your home. If you don’t, then you’re simply not ready to buy a home.
The biggest reason most people fail to achieve goals in life, is the “I can’t because” attitude. If you’re saying to yourself “I can’t do it” you need to read this: I Can’t
If you believe you can, then keep reading.
When saving for a down payment, you have to ask yourself how much monthly payment could I add to my budget and still meet my other needs? Take this amount and pay yourself. If you find you lack the will power, then, go to your bank and take out a loan equal to the amount of your down payment goal. Set the repayment terms up so they meet your budget. Secure this loan with a interest bearing certificate of deposit equal to the loan amount. You now have your down payment within your grasp. If in the future you run into financial trouble, simply cash out the CD and payoff the loan. This method is the best because it puts your target clearly in your sites without risking your financial future. Your goal is clearly to pay it off early. It’s time you start paying yourself.
How do you do this? Income tax return. You get a nice fat check from IRS every year? What better place to put those funds than a lump sum paydown of the balance you owe. That’s paying yourself first and getting rid of the temptation to spend this money elsewhere.
Don’t get money back? Try reducing you dependents and paying more taxes to force savings. No, you don’t make any interest, but no interest and having cash come back is much better than no cash and no interest.
Your birthday is coming up? If somebody asks what you want tell them Cash and tell them why. You’re saving for a home and your birthday money will contribute to your down payment fund. How much more will you get for your birthday just because everyone wants to see you achieve your goals? Pay yourself!
Everyone has to much clutter. Things that look nice on the shelf, or stocked away in a closet. These things are hindering your success. Sell them. There is very little we own today, that we cannot replace tomorrow. Have a yard sale, get rid of the clutter and down to bear necessities. Take that money and pay yourself.
Get a part time job. Even if it is only 8 hours a week. Every check you get, pay yourself. Have a spouse? Rotate part time jobs, so you both are making a sacrifice to pay yourself and achieve your goals. You have children? Get your family involved. If they know why you need help, even if they cannot contribute financially, chances are they will contribute by helping you through watching your children so you can provide a brighter future for them.
Not making enough money where you’re at? This is a prime opportunity to change jobs. Find a job that pays you more money, and take the difference and pay yourself.
I’m certain you can think of many other ways, that you can sacrifice for the short term, to create and save your down payment and start paying yourself.