Homebuying 101: Options and Strategies
In the U.S., 80% of people purchase their first home between the ages of 18 and 34.1 So if you’re home-bound, you’re in good company. If you’re puzzled about how to achieve this, you’re not alone either. Of your peers who rent, 67% say they can’t afford to purchase yet.2
We’d like to help change that. Here are some ideas on what to consider in loans and ways to save. A little knowledge and a plan can get you moving quickly!
Not surprisingly, a down payment represents one of the biggest roadblocks to home ownership. With many loans requiring 20% down, saving up can seem impossible. Even a loan for $100,000 would mean $20,000. (And in California, the median home price is well over $400,000.) And once you’ve got your down payment, you still need money for closing costs.
If you’re stumped about this, consider the following.
Loans with lower down payments
Some fixed rate loans are available with down payments as low as 5% and 10%. This can be a great savings in initial onetime costs. These loans would require Private Mortgage Insurance (PMI).
Low-cost mortgage loans
These loans give you credit for most of your closing costs, so you don’t have as big a financial obligation when it’s time to close. Click here to learn more about County Federal Home Loans
Saving money challenges even the most disciplined among us. So what are some ways to save for your home? Here are some ideas.
- Create a dedicated savings just for your down payment and closing costs. Set up an automatic deposit that each month, even a small amount gets added.
- Save everything from unexpected “windfall” money. This includes tax refunds, money you received for a birthday or holiday gift, money from selling something, a bonus, etc.
- Save a little less for retirement (for now). If you have a 401(k), evaluate how much you need to contribute to it at this time. Contributing enough to achieve the employer match is smart, but there might be some room to direct some money to your housing account, at least for the time being.
- Evaluate your current housing situation. Can you take on a roommate? Move to a smaller space? Move back home or into a friend’s? Rent is often the biggest financial obligation when you’re saving for a home. You might be able to save a significant amount of money quickly by making this short-term sacrifice.
- Analyze your vehicle. If your car is paid off, great. If not, is there a way to refinance it into a less expensive payment? Or sell it and get something less expensive (or something you can pay cash for)? We’ve got great auto loan rates and programs. Perhaps one of them can help you save on your ride…and save for your home.
- Eliminate non-essentials (for now). Cancel monthly subscriptions if you can (e.g., your gym membership, cable and streaming services, wine club memberships, etc). Bring your lunch. Cook at home more, or suggest potlucks with friends rather than going out. Declare a moratorium on buying new clothes, shoes, accessories and impulse buys.
- Look for additional work opportunities. If you are offered overtime, take it. If you can make money doing odd jobs, helping out, or taking on side projects, do it. Or consider a part-time job or working for a temp agency. The benefit to working more is two-fold: you’re earning a bit more, and you’re not out spending money.
- Look for items to sell. Rummage through your possessions. You might find plenty of things that you don’t need or use anymore, like sporting equipment, clothes, jewelry, dishes, collectibles, books and more. Organize a garage sale for yourself, or get together with friends and have one. You can also sell things online. The benefit to this is not just making a bit of money, but making it easier on yourself when it’s time to move!
Buying your first home is an exciting chapter in your life. It might take a bit of diligence and even some sacrifice, but the rewards of getting your own home-sweet-home will pay off for years. Happy shopping!
Curious how we might help? Contact our Real Estate Specialists here or call (408) 282-0742.
1. “Millennials’ Home Ownership Dreams Delayed, Not Abandoned,” NewGeography.com http://www.newgeography.com/content/002919-millennials%E2%80%99-home-ownership-dreams-delayed-not-abandoned
2. “Millennials Eye Home Ownership,” Los Angeles Daily News, http://www.dailynews.com/business/20141023/millennials-eye-home-ownership