Back to the Traditional Down Payment

In today’s mortgage market, it is no longer necessary to have a 20% down payment in order to qualify to purchase a home.  However, you pay for the privilege of being able to buy a home with no savings by paying higher monthly payments, greater interest expense, and sometimes private mortgage insurance (PMI).  But by making a few changes, you may find saving  for a home isn’t such an unattainable goal after all.

Commit. Once you (and your spouse or friend) decide that you REALLY want to buy a house, that desire will help motivate you to save every penny you can.

Review your budget. If you don’t have one, MAKE ONE.  Determine where you can cut back on spending and earmark that money for your Down Payment Account (DPA).  Some ideas:  take your lunch to work, clip coupons, stop smoking, skip the babysitter by setting up a co-op arrangement with friends and neighbors, cut back on dining out, don’t even open the catalog, and don’t carry much cash.  Don’t cut out all of the fun stuff, but do start to be more cautious.

Open a DPA. Establish a special account to hold your savings, such as a high-yielding bank savings account or CD.  Remember that although CDs generally earn higher interest rates than savings accounts, they also have maturity dates, and you will be penalized if you take the money out before that date.

Tell your family. If your parents or other relatives send you presents for your birthday, anniversary or the holidays, they might instead contribute to your DPA.  Good manners should keep you from insisting upon this; but it won’t hurt to let them know about your goal.

Go automatic. Arrange for a certain dollar amount to be taken out of each paycheck and deposited directly into your DPA.  If you don’t see it, you won’t spend it.

Reduce credit card debt. Stop charging more than you can pay off each month.  Wipe out your existing credit card debt as quickly as possible; start with the highest-rate cards first.

Keep on paying. When you pay off a car or student loan, continue to write a check for that same amount every month—and put it in your DPA.

Moonlight. If taking a second job for a year or two will make the difference between living hand-to-mouth and saving for a down payment, take it on.  Once you’ve covered your down payment, you can probably lose the extra gig.

Simplify. What luxuries can you live without as you beef up your savings?  Think cable, cell phone, caller id, and music and books hot off the presses.  Shop at less expensive stores, compare prices and wait for sales.

Sell, sell, sell. If you already own property, you can sell it or borrow against it.  If you own a boat, motorcycle, camper or car that you can live without, sell it and add the proceeds to your DPA.  If you own securities, you can either sell them or establish a loan through your stock brokerage to borrow against them.

Be realistic. Know that this is going to be an ongoing process and it will take you some time to reach your goal.  But even if it takes a year, use that time to get your debts under control, repair your credit if needed, find the bliss of discipline, and know that it will all be worth it when you close on your new home.

Meet Cheryl!

About Cheryl

As a successful business owner and community leader, Cheryl Braunschweiger is known and respected for getting things done with a degree of skill and enthusiasm that bring out the best in those around her - colleagues, clients and friends. The name of her business, ALMC Mortgage, reflects Cheryl's philosophy and personality. She says it stands for All Loans Must Close –a reflection of her determination to do whatever it takes to serve her clients. Cheryl has been in the mortgage lending business for 20 years. Read More About Cheryl
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