Savings calculator + prudence = new home

September 29th, 2010

Since 2007 home buyers have had the advantage in the real estate markets as home prices have dropped and inventories have risen. During this buyers’ market you have told yourself many times, “I wish I had enough money for a down payment.” Well you probably do have enough money; you’ve just been spending it every day. Here are some tips for every day savings that can quickly build your new home down payment account.

How much cash will you need?

First take a look at what you need for down payment and closing costs for your new home. Consider a $200,000 home. You have used the prequalification calculator and feel confident you can qualify for the monthly payment. Using the closing costs calculator you can determine the approximate funds you will need for loan fees, settlement and title agents and other costs.

Depending on your negotiations with the seller, many or all of these fees may be paid for by the seller or as credits from the real estate agents. What cannot be paid for by anyone else is the down payment. With an FHA mortgage your minimum down payment is 3.5 percent of the purchase price, or $7,000 for a $200,000 home. So where do you get the $7,000?

Daily savings

An honest assessment of your spending habits will show opportunities for you to save a little money every day that can quickly build. Like beginning an exercise or diet program, the first few days and weeks are hardest; then once you get in the groove you quickly find other ways to save and solid spending and savings habits are created.

Start with your morning routine. Do you stop off at the local coffee shop or national chain for a cup of coffee on the way to work? At $2.50 or more per trip you are spending $12.50 per week, or $625 per year for a cup of coffee you can make yourself. A two pound can of coffee costs about $10.00; for the price of four cups of coffee you can make almost 300. If your spouse has the same routine you have just saved $1250 towards a down payment just by changing who makes your morning cup of Joe.

What about lunch? Do you go out to the local burger stand or diner with co-workers every day? Average price of a lunch is about $7, or about $35 per week. Eating lunch with the guys or gals from the office adds up to $1,750 per month; if your spouse has similar habits that adds up to $3,500 per year. Plan your dinners so you have leftovers for lunch. While your friends are eating cheeseburgers and fries, perhaps you are enjoying some roast chicken with grilled asparagus or savory beef stew with homemade rolls.

Just changing your morning and lunch time routines can add $4,750 in savings to your down payment account, or about two-thirds of what is needed for that $200,000 home.

Weekly and monthly savings

Food is a primary source of savings. Late in the afternoon your husband or wife calls you, “what do you want to do for dinner tonight? We have to pick up Lisa at soccer and James at baseball, I don’t want to drive through anywhere again but I don’t feel like cooking…” And so another $50 family dinner out begins. How many times a week does this happen? Once, twice, three times? If you cut out one family dinner at a restaurant per week you save $2,600 for the year. Add that to the $4,750 you have saved with coffee and lunch and you have your down payment.

Do you use that $25 per month gym membership to mostly walk on the treadmill and watch television? Take the walk in your neighborhood instead, with your spouse or kids or a neighbor and save $300 per year per person. What about those premium movie channels on your cable or satellite television bill? How often do you watch those channels? Are they worth the extra $15-$20 per month? There’s another $240 per year.

Needs vs. wants

Start looking at where you need to spend money versus where you want to spend money. As you shift your spending habits away from what you want but do not need — luxuries such as meals out and premium television channels — you will develop frugal habits that will build your savings account. Using the mortgage calculators available will help you keep track of your progress and goals and soon enough you will be a homeowner. Just think, if you had started this plan a year ago you would already be at your goal!

With prudent spending habits, a commitment to savings and using a down payment saving calculator you can save the money you need to purchase your new home.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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