If buying a home is on your New Year’s Resolution list for 2013, know this: your biggest challenge will almost certainly be coming up with your down payment and closing costs.
Whether you’re trying to scrape by with 3.5 per cent for an FHA loan or you’re planning to put down a full 20 per cent, saving for a down payment might be the largest savings endeavour you ever undertake, after retirement planning.
But don’t let that daunt you.
Look at it as more of a challenge or a game than a slow-slogging deprivation-driven chore. In fact, I suggest that you add something to your scrounging and saving: scavenging.
Finding your down payment money hidden in resources that are right in front of you can be a fruitful and fun angle to take on an otherwise overwhelming goal.
Use this short list of oft-untapped down payment treasure troves to open your eyes to funds that might be hidden in plain sight:
1. Your budget’s biggest line items.
I like to get maximum bang for my buck. And I like to enjoy my life, too, so depriving myself of little luxuries without getting much mileage toward my goal is definitely low on my savings strategies list.
But I’ve often found that if you take your top 10 or so monthly expenses, there are almost always at least one or two that you could slash significantly or totally do without, push come to shove: all without feeling as deprived as you would if you cut your daily coffee.
Home buying is one of those push-meet-shove-type situations. If you’re serious about coming up with your down payment funds, sit down during your holiday off-days, and backtrack over your monthly budget (if you have one) or your last month’s checking account statements.
Isolate your top 10 budgetary line items and do an internal gut check on whether there is anything on this list that you can slash or eliminate.
If this seems obvious or silly to you, don’t scoff before you give it a chance. I have seen buyers do this exercise and decide to:
• move home or to a cheaper place to eliminate rent
• go from two cars to one to eliminate a car payment
• cancel cable or switch cell phone service providers to get rid of a hundred bucks or more every month,
pressing fast-forward on their down payment savings and home buying plans by many months, even years.
2. Your bad habits.
Have you heard yourself say — out loud or internally — I’ve got to stop:
• drinking so much
• eating out so much
• eating so much junk
• watching so much TV
• drinking so many sugary coffee drinks
• impulse shopping
• OSUI: Online Shopping Under the Influence (it’s a real thing — I promise!)
— or anything in that vein?
Well, each of these are bad habits that cost. And because they are often engaged in compulsively, they can cost much, much more over time than you have any idea you’re actually spending.
Again, far be it from me to suggest that someone who works hard every day shouldn’t treat themselves to a coffee or lunch here or there. The fact is, if you deprive yourself too severely, there’s a good chance your efforts to cut back and save will be very short-lived, and possibly even backlash into binging behaviour.
But if there’s a habit you’ve been wanting to change for health or other reasons that also costs you a pretty penny, you might find it easier to make those changes when you know you’re doing it in service of your vision of owning a home.
So, make a project of it. Figure out roughly what you’re spending on your bad habit, and set up an automatic saving transfer from your checking account into your down payment savings account.
Then, get and leverage some habit-changing resources, like those at ChangeAnything.com or in one of my favourite books this year, The Power of Habit: Why We Do What We Do in Life and Business.
Then, when you feel the compulsion to engage in your bad habit, come to Trulia instead and peruse new listings in the price range and neighbourhood of your own target dream home — that will help you stay on track by staying mindful of what’s really important.
3. Your stuff.
When you need to save money, there are really only two levers you can pull: you can spend less, or you can make more. Selling stuff you have and don’t use or need is a relatively painless way to make more money to go toward your down payment.
If you’re really serious about home buying, put everything on the table.
I’ve known buyers-to-be who sold any and everything, including:
• cars and motorcycles
• clothes, costumes, shoes and handbags
• hobby-related gear (bikes, tools and even costumes)
• furniture and antiques
• and electronics, CDs and even books (think: TVs, computers, old smart phones, etc.)
to fund their down payment and home buying-related debt elimination plans. Don’t underestimate the amount of cash you can bring in from the stuff you already own. Millions of home owners worldwide are now renting out rooms or floors of their current homes for short periods of time on sites like Airbnb and VRBO.
Sites like Getaround and Zimride allow you to rent out the extra seats in your car — or the whole vehicle, if you’re not too faint of heart!
4. Your skills and time.
One way to make more money, as discussed above, is to liquidate the things you have lying around.
Another way is to get to work! Spend your off-time, your evenings and weekends leveraging your professional skills or personal hobbies to bring in some extra cash.
A friend of mine recently had a savings target she was trying to reach and actually sent her whole circle of friends an email detailing (a) what she was selling and (b) what sorts of projects she was willing to do to get there – she earned well into the four figures, in less than a month.
Maybe you can sew or knit stuff to sell on Etsy, grow things in your backyard to sell at the farmer’s market or, like one enterprising mum I know, use your baking and cake decorating skills to monetise your kids’ classmates’ birthday parties.
Or maybe you’re more interested in cooking, house cleaning, babysitting or dog walking — in fact, another acquaintance of mine has earned thousands of “extra” dollars dog sitting while she works at home. If that sort of thing is not up your alley, think about whether you can help people you know with their small business projects, like research, bookkeeping or office organising projects.
Once you get serious about coming up with your down payment cash and decide to be creative about where to find that money, using your skills and your time creatively is a power-packed way to open the financial floodgates.
Consider starting out with a simple email to your circle of acquaintances or by listing your services on a site like TaskRabbit.
5. Your loved ones.
Some folks are fortunate enough to have cash-flush loved ones who would love nothing more than to help you have a home of your own. The best case scenario is to have some idea of what sort of gift money you can count on as far in advance as possible, as it will impact your own savings targets and your lender’s documentation requirements.
If you have a parent, sibling or auntie who has mentioned their interest in giving you this sort of gift, it’s not bizarre to bring the subject up, express your gratitude and let them know that you’re planning to buy in 2013 so you can have a detailed conversation about logistics — including their financial, tax or estate planning pros, if it makes sense.
Alternatively, if your home buying plans are timed alongside your wedding plans, graduation plans or new baby due date, consider opening a down payment registry, so well-wishers can funnel their gift funds right into your real estate savings.
For example, the federal Dpeartment of Housing and Urban Development (HUD) allows small gifts to be combined in a single savings account and eliminates otherwise onerous gift money documentation requirements with the FHA Bridal Registry program, which is available around weddings and “other legitimate occasions where substantial gifts are typically received by an individual or individuals.”
Touch base with your lender and agent to see whether there are any registry programs that might make sense for your situation. Finally, buyers who decide to team up with their BFFs, siblings, parents or other loved ones to buy a place they can jointly own and/or live in might be able to structure things so that they have to come up with less down payment money than they would otherwise — the co-buyer comes up with the rest!
Think about whether this sort of arrangement might help you and your loved one accomplish your respective financial and real estate goals, in one fell swoop.
6. Your employer.
Believe it or not, some employers actually offer down payment and other forms of mortgage assistance to employees. In particular, universities and governmental agencies that employ first responders who are required to live locally for their jobs (e.g., police, fire and other emergency personnel) often have housing assistance programs that can include down payment funds or access to mortgage programs with lower down payment requirements.
Even if you don’t work for one of these sorts of agencies, if you are relocating for work, touch base with your HR department to find out whether there are any relocation benefits that can help you make up the difference between the cash you have and the down payment you need to make your move.
7. Your city, county or state.
What you’ve heard is true: there are few, if any, down payment assistance programs still available on a national level.
But many states, counties and cities offer their own down payment assistance programs, which are generally available to folks falling into one or more of the following categories:
• first-time buyers (people who haven’t owned a home in the area in the last 3 years)
• buyers in low- or moderate-income brackets
• or those buying homes in a particular part of town.
Your mortgage pro and real estate agent should be able to help you track down any such local programs applicable to you. In fact, this is one great reason to touch base with them at the beginning of your down payment savings adventure versus waiting until the end.
But make sure you read up on the programs extensively before you decide to opt into one. Many of them run out of cash over the course of the year, so shouldn’t be counted on; others may require you to repay any assistance received if and when you sell or move — things you should keep in mind at the outset.
ALL: What creative or aggressive means did you or your clients take to get their down payment savings on the fast-track?
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