Tag: financial planning

Smart Strategies to Save for a Down Payment on Your Dream Home

Dreaming of buying a home? One of the biggest challenges of the process is coming up with a down payment, a percentage of the home’s purchase price that you must pay at closing.

But don’t worry; with the right strategies, accumulating a cash down payment can become more achievable than you might think.

Let’s explore several simple and practical strategies to help you reach your goal of homeownership.

Set a savings goal

Start by determining how much you need for a down payment. Despite what many Americans assume, 20% down payments are not mandatory. In fact, the average down payment is 6%, according to the experts at Reliance State Bank. Several government-backed mortgage products require much less, depending on your circumstances.

Then, there are down payment assistance programs. Talk to a mortgage professional to understand the specific amount you should aim for.

Then, determine a realistic savings goal based on this amount and break it down into monthly or weekly savings targets. This way, you’ll have a clear roadmap to follow and stay motivated.

Then, make saving that money a no-brainer

Make saving easier by automating your savings process. One of the easiest ways is to dedicate a certain amount of each paycheck and automatically transfer it to your savings account.

This way, a portion of your income is saved before you even have a chance to spend it. Over time, your savings will grow without requiring constant effort or discipline.

Put together a budget

Developing a budget is key to managing your finances effectively. Track your income and expenses to determine what you’re spending on and which categories you can eliminate or reduce your spending.

Trim unnecessary expenses like eating out or subscription services. Consider cooking at home, packing lunches, or exploring free entertainment options. Redirect the money you save towards your down payment fund.

Check out these free budget templates:

Research down payment assistance

Look into down payment assistance programs. These programs, offered by government agencies or non-profit organizations, provide financial assistance to eligible homebuyers.

Depending on the program, they offer low- to no-interest loans, grants, or other assistance to help bridge the gap for your down payment. Consult with your lender for local sources and research, and contact local housing authorities or community organizations to explore these opportunities.

Check out BankRate.com for an informative breakdown of a number of down payment assistance programs.

Boost your income

Consider ways that you can make more money. Look for opportunities to earn extra money, such as freelancing, gig work, or a part-time job. Use the additional income solely for your down payment savings.

Every little bit counts and can bring you closer to reaching your goal faster. Here are some additional ways to pump up your savings account:

  1. Downsize or rent cheaper accommodations

If you’re currently renting a larger or more expensive place, downsizing to a smaller or more affordable accommodation can free up extra funds for your down payment. Look for other ways to reduce your housing costs, whether by finding a roommate, negotiating a lower rent, or exploring more affordable neighborhoods. Temporary sacrifices can lead to long-term gains.

  1. Tap into gift funds

Sometimes, family members may be willing to gift you funds toward your down payment. If you’re fortunate enough to have supportive relatives, discuss the possibility of receiving financial assistance as a gift. Remember that lenders may have specific requirements regarding gift funds, so understand and comply with any regulations.

  1. Save windfalls and bonuses

Whenever you receive unexpected windfalls like tax refunds, bonuses, or inheritances, resist the temptation to splurge and instead direct those funds toward your down payment savings. These unexpected financial boosts can provide a significant jumpstart to your savings goal.

Saving for a down payment requires discipline, but homeownership can become an attainable goal with these strategies. You may be surprised how quickly you’ve accumulated the money needed to purchase your dream home.

Remember, patience and perseverance are key.

 

Struggling to buy a home? Consider multi-gen living

In the 19th century, three generations living in the same home was a practice that dominated the American lifestyle. “Victorian society believed in the importance of family …  Lifespans were lengthening, and couples also married earlier and had children sooner, so families were likelier to have three living generations” in one home, according to Flora Davis at SilverCentury.org. So it was Grandpa, Gramma, Mom, Dad, and the kids, all living as roommates.

By 1900, “… 57 percent of Americans 65 and older—and 71 percent of widows—lived with one of their grown children,” Davis claims.

Along came the Great Depression, and it only made sense for multiple generations of Americans to share the burden of the cost of housing.

Until the advent of Social Security upended everything.

“… almost immediately, living arrangements began to change: soon all but the poorest elders could afford to live independently,” Davis says. “By 1990, just 20 percent lived with an adult child, down from 71 percent at the turn of the century,” she concludes.

Fast forward three years ago, and we see a resurgence in the trend. Around 15 percent of homebuyers surveyed by the National Association of Realtors had plans to include multiple generations in their new home. “That’s an 11 percent increase in multi-generational buyers over the prior year,” claims Davis.

A lot of this has to do with sky-high home prices, bringing sky-high mortgage payments. It’s a lot easier to deal with the cost when several adults are contributing to the budget, the child-care duties, and looking after the Grands.

Have you considered joining the trend? If so, read on for some tips to keep in mind.

What to look for when house hunting for a multi-gen home

As you can imagine, with so many people under one roof, privacy is at a premium. Ensure that the home you place an offer on has a space for each member of the family to call their own.

This can be as simple as putting up dividers in large spaces to taking on more involved tasks, such as constructing new walls.

You’ll need to look into the local zoning laws if you choose the latter or find a large home to take advantage of the former.

Remember that much of what you need to look for in a home depends on which generations will live there.

“If you have adult kids moving in, a loft or a finished lower-level apartment might work well,” according to real estate journalist Michele Lerner at NewHomeSource.com. “For families moving older people into their home” keep “…the multigenerational suite on the first floor to avoid stairs,” she concludes, citing Jeff Roos, with Lennar Homes.

Lennar, by the way, offers its own solution for multi-gen living known as NextGen “Home Within A Home.” This may be your solution if a newly constructed home hits your hot button.

Remember, even when shopping among newly constructed homes, you will want your own real estate agent. The new home community’s agent works for the builder. Always have your own representation.

Issues to consider

Yes, it’s uncomfortable, but the financial aspect of the home purchase and ongoing costs are a discussion that needs to take place early in the process. And the discussion should not be “a parent-kid thing,” according to John Graham, who co-authored a book on multigenerational living.

He goes on to caution that families should aim to “level the hierarchy of the family,” treating each member as an adult. Some of the topics of these conversations should include:

  • Who will buy the property?
  • How will the title be held? It’s essential to understand the different ways of holding a title. For instance, what happens to the home upon the death of the primary buyer?
  • How much will each adult contribute each month to the mortgage payment?
  • Lists of each family member’s must-haves in a home and those he or she can’t tolerate.

Talk to your attorney to ensure you’ve discussed all the ramifications.

Dysfunctional families may find the thought of multigenerational living intolerable. Still, it may be the ideal lifestyle for families who enjoy close ties and harbor respect for one another.