Why Eliminating Your Daily Latte Won't Get You Your Down Payment

We've all heard the advice--stop buying that three dollar latte on the way to the office every day, and you will be surprised at how quickly the savings add up. Although every dollars counts, eliminating your morning coffee is not going to yield a mortgage down payment anytime in the reasonably near future. Consider this. If you work the typical 240 days per year and you spend three dollars for coffee on your way to work each and every day, you will spend $720 over the course of the year. If you deposit that money in an interest bearing account which, if you are lucky, might earn interest at 1.5 percent, at the end of twelve months you will have a grand total of approximately $725.

Minimum Qualification for Median Home Mortgage

Then consider that the median home price in the US is $249,000. Your down payment for an FHA loan (3,5%) FHA loan is $8,715. You need to save $176 per month for four years (less than $6 a day!) and earn 1.5 % interest to come up with that amount.

Modest Proposals: Saving for Your Mortgage Down Payment

If you are a patient and disciplined person in a location where $249,000 buys a decent home in a safe neighborhood, here are some suggestions for saving a down payment:

  • Buy a thermos and forgo the daily stop at the coffee shop

  • Pack your lunch

  • Walk, bike or take public transit to work to save on gas and wear and tear on your car

  • Get your movies for free from the public library and cancel your cable or Netflix subscription

  • Get a free voice over internet phone service (VoIP) instead of paying for a land line

  • Cancel your gym membership; if you are walking to work, you will be getting lots more exercise

  • Let you cleaning lady go; remind yourself that housecleaning is good aerobic exercise, and besides, she always forgets to mop behind the toilet

  • Fire the dog walker; not only will this save you money, it's a great way for you and your dog to bond

  • Instead of buying your magazines at Barnes & Noble or Borders, go to the library.

  • Challenge yourself to find no cost entertainment: free days at museums, public art displays, concerts in the park, and card games with family and friends.

  • If you smoke, stop. You will both feel better and save money in the near and long term.

  • Have your beer or cocktail at home instead of at the bar.

  • Save windfalls--gifts, bonuses, rand raises to speed up the process.
  • Clip coupons--and only buy what you need.

  • Find the best rate you can get on your savings. Sites like www.money-rates.com help you compare the best rates out there for short-term, insured savings. At 3% instead of 1.5%, and putting away $8 a day instead of $6, you could be ready for homeownership a full year sooner.

Okay, you get the idea. If you are serious about saving, you must do much more than just eliminating one expense; you must cut many expenses without adding others, and you must put the savings into an untouchable fund. By doing most or all of these things, the money does begin to add up.

Calculators and "What If's"

Start with a prequalification calculator to discover how you prequalify for in your current circumstances and what your estimated monthly payments will be. Take a good look at the monthly nut. Forget what you qualify for; does that amount allow you to sleep at night?

Chances are, you are not going to purchase a home that is exactly at the median price. To know how much you need to put down, and how long it will take to save, use one or more online mortgage calculators. They are easy and quick to use and will give you the hard data to help move you from dream to scheme.It also makes sense to use a savings calculator and see what what you need to do daily to reach your goal.

Posted By :
Lorraine Watkins is a regular contributor to business and education websites. She is a notary in California specializing in loan documents. She holds an MA in English from California State University, East Bay.

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