How do you save for a down payment of a house?

[sasa]

My sister and her fiancŽ just purchase a condo, the fiancŽ''s parents put in $200,000 down payment for them. BF and I are pretty depress, we are saving like crazy for a wedding and hopefully a home of our own in the near future. But how can we ever save up that much for a down payment.

I understand that I don''t need to put down that much for down payment, but I still can''t imagine how we can save up like $30,000~$40,000 for a down payment in the NEAR future.

 

[Mara]

It's not unheard of to do lower down payments or none at all...some may frown upon it, but sometimes it's the only way to get into a place esp in an expensive area. Sometimes the longer you wait, the more the market outprices you so even if you continue to save...sometimes appreciation in expensive areas climbs faster than your savings.

You should look into the different financing options and see if you quality for 5% or even 0% down...you can always add more equity into the house later with larger payments and/or lump sums if you expect more income or better financial stability at some point in the future.

We bought during a time when we didn't have alot of extra cash laying around, we were getting married less than 4 months later and paying for it ourselves....but it was the right time for us mentally, we did some scrounging and creative financing, and less than 6 months after we purchased, our place was valued at about 75k more than we paid. Now a year and a half later it's up double that. So if we had waited 6 months or even a year we could not have afforded this same place and we'd be in some 1/2 size condo thinking 'what if'.

Definitely do the research and see what your options are before ruling it out!!

 

[perry]

Consider a smaller house, and upgrade later. Many people buy a larger house than they need just to look impresive (keep up with the ...).

Pick where you live. There are a number of people who have moved from the big cities on the east and west cost to the midwest. Yes you normally take a pay cut, but housing and living cost are much cheaper (soup and sandwich for lunch $5-$7 vs $15 - $20).

Fortunately, I was able to execute a VA loan with no down payment for a 1300 Sq Ft house ($100,000) in the Midwest.

I was able to pay off $30,000 in CC bills, and sink $15,000 into other things in 3.5 years. But it means living tight and not doing a lot of running arround (and I still have about $15,000 to go on those CC bills). Medical and life expenses can really add up when you are not insured - and the fact that you cannot get proper treatment keeps you from working a good job...


Perry

 

[sasa]

Date: 7/6/2005 6:58:52 PM
Author: perry
Consider a smaller house, and upgrade later. Many people buy a larger house than they need just to look impresive (keep up with the ...).


Pick where you live. There are a number of people who have moved from the big cities on the east and west cost to the midwest. Yes you normally take a pay cut, but housing and living cost are much cheaper (soup and sandwich for lunch $5-$7 vs $15 - $20).


Fortunately, I was able to execute a VA loan with no down payment for a 1300 Sq Ft house ($100,000) in the Midwest.


I was able to pay off $30,000 in CC bills, and sink $15,000 into other things in 3.5 years. But it means living tight and not doing a lot of running arround (and I still have about $15,000 to go on those CC bills). Medical and life expenses can really add up when you are not insured - and the fact that you cannot get proper treatment keeps you from working a good job...



Perry

I live in California, a one bedroom one bath condo (apartment style) cost around $350,000 and I''m not talking about a good one. I''m getting a lot of mixing signals. some said the price of real estate will go down eventually....other said it won''t go down much...if I want to buy I need to act now

Very confuse I have to say.

 

[glaucomflecken]

Bobo I will be in your situation soon. FI is in Northern VA/DC area where it seems the housing market is ridiculous like California, and with my student loans, wedding, saving for emergency fund, etc, it seems impossible to try and be a homeowner. I will be interested in hearing what everyone says too.

 

[Dancing Fire]

i better keep my big mouth shut on this subject,or else Mara is gonna hit me over the head with a baseball bat,ouch !!!.

i'm worry about how my kids be able to afford a house.

 

[sparklish]

I think the trick is just to sock away as much as you can. If the two of you each put aside 500$ a month, you''ll have your DP in just 18 months or two years (depending where you live), less than that if you can save a little more.

I have no idea where you live but $200,000 sounds like a huge downpayment. I think the key is just to budget - figure out how much you spend each month - track it for a month. You may be surprised at what you spend. Then decide what you can live without. Can you do without cable? Can you eat out only once a week instead of twice? Can you limit yourself in buying new clothes? Then have the money automatically removed from your account and put into T-bills or a high-interest savings account. Do something secure with it - might want to talk to a financial person on this.

I wouldn''t advise putting 0 down, that''s really risking a lot if your place doesn''t appreciate fast enough - the interest will kill you. But if you can scrounge up 10%, you should be okay.

 

[fire&ice]

Sometimes renting makes sense. I see punch&pie case as one that makes sense. You are in a new area. Renting can give you time to explore your options & not have to worry about any maintanence issues while the both of you are upstarting & probably won''t have much time on your hands.

As for savings, bank the big stuff (i.e. if you get a tax refund or other "found" money). Create a budget & squezz out all the excess. It doesn''t take long to save when you are careful.

Good luck! Renting may be for you also.

 

[jellybean]

When we first got married we lived with my FIL for 3 years while we were saving up. We shared an apartment with him but it was two floors -- the main level and the basement. Yeah, it wasn''t our dream situation but we knew we were doing this to better ourselves.

We also tried to put away as much we could from not eating out, not buying a ton of new clothes, not going on vacations, etc. We also didn''t buy each other birthday, anniversary or christmas presents. We said the house would be that present.

 

[Blue824]

I was sort of rambling and then I deleted it all to say: every little bit adds up.

That was the basic point of my message!

Skipping going out for two people, $30-50+
Skipping the movies for two people, $20+
Lunches at work $5 x 5 x 2=$50+/week for two people

While you might not think twice about some of your habits, its something to look at.

One major trick for me is keeping my "downpayment" money seperate from everything else. I actually made appointments with my investment firm and my bank and talked about the best options for me. I''m very cautious with my savings, and am not comfortable in stocks, so a small percentage is in stocks while the majority is in CDs. The CDs I''m in aren''t very long term, but they earn about 5x the interest I''d have recieved in the general savings account. Talking with them was VERY helpful to me! Even though I sort of knew what I wanted anyway, I liked that they understood and got to know my goals. My bank is small and personal, and they know a lot about me anyway, but I figured it was in my best interest to have a good relationship with them when it comes time for a mortgage too

Anyway, best of luck!!! It may seem daunting now, but if it is something you really want, you will get it.

 

[sasa]

Thanks for all the great advice!

My other concern is we''re planning to get marry next year and have kid or kids right after...I''m just afraid once the baby come, it will be harder for us to save. I know baby cause a lot of $$

 

[Mara]

screw saving.

explore other options.

i only say this because you live in S.CA and you will not easily save up 10% on anything but a shack in compton unless you have $100k laying around. you live in an area where things are expensive, like us, so many people i know in the last 5 years have had to explore creative ways to finance to get into a house..what you do when you are inside that house is another thing. but getting in sometimes can be the tough part. esp with the prices in CA right now.

you should also check out the thread on saving money that was on here a few weeks ago, people had a lot of good ideas there.. aka we skip the movies for $20 and get PPV for $3.99.

doesn't pay the mortgage but it helps with the HOA.

 

[sasa]

Date: 7/7/2005 8:18:43 PM
Author: Mara
screw saving.

explore other options.

i only say this because you live in S.CA and you will not easily save up 10% on anything but a shack in compton unless you have $100k laying around. you live in an area where things are expensive, like us, so many people i know in the last 5 years have had to explore creative ways to finance to get into a house..what you do when you are inside that house is another thing. but getting in sometimes can be the tough part. esp with the prices in CA right now.

you should also check out the thread on saving money that was on here a few weeks ago, people had a lot of good ideas there.. aka we skip the movies for $20 and get PPV for $3.99.

doesn''t pay the mortgage but it helps with the HOA.

Yeah...I agree Mara, saving is not doing much...I need other options. But I can''t think of any other option....anybody?

Living in California is not easy....everything are expensive. The condo my sister bought, it''s in Irvine, CA. It cost $586,000 with 3 bedroom 1.5 bath and a small yard. I don''t know...I think it''s too much...she''s lucky she got great future father-in-law.

 

[Mara]

there are tons of other options out there for first time homebuyers....you should check them out. sounds like you really haven't just yet. also find out what you can qualify for....it will at least give you some idea of where you are in the scheme of things.

we used eloan.com for our loans...i did alot of research with local mortgage brokers and eloan was the best and they are not on commission so it was not like they pushed us into anything. i did all the research on what we wanted and worked with the gal there, she was great. also they don't charge any loan fees so you save like $5k in closing costs...!!

honestly, i know everyone says CA is expensive and yes it is getting there, but we paid over half a million for our townhouse and our mortgage payments do not kill us each month and we have a plan for the future. the payments were actually less than we had expected when we didn't know anything about it. sure it's not our dream home but you have to start somewhere. you may not be able to afford what you really want right off the bat. i gave this same lecture to my girlfriend who totally overextended herself just to live in a city she wanted to be in. why? it's a starter home, not the end-all-to-be-all. you have to be smart about what works for you and do the research...don't rely on others to tell you what is the best way to go.

where there is a will, there is a way...

 

[MrsFrk]

I agree with Mara regarding getting creative.

We bought a house in Northern California (Silicon Valley) in 1998. At the time, I was making $11 an hour, my husband about $13.
Being homeowners was very important to us. Neither of us had ever lived in a house, just apartments.
We worked full time, postponed our educations (not a good idea for everyone, but we were completely on our own financially, and wanted to own a home here), and saved our pennies.
Any small windfall- straight to savings, as if it didn't exist.
When the rest of our 22 year old friends were racking up CC debt and going to Europe, eating out 14 times a week (no kidding), we were eating at home, going out to eat only 2 times a month. No fancy new cars. We shared one 1980 Celica.
We got into a house with super good FICO scores (800+), 5% down, and a variable rate mortgage (though our credit was excellent, our income sucked, hence the variable rate).
3 years later we refinanced to a very good fixed rate.
Our house has appreciated by 100% in 7 years.
It is not our dream house, and it was definitely a fixer upper. Heavy smokers lived here, everything was drenched in nicotine.
We are now quite comfortable. More financially secure than our college educated, supported by mom and dad friends.
For us, being homeowners required huge sacrifices, but was the springboard we needed to move from lower to upper middle class.
I am now finishing my education, and it is I think much less stressful than if we were 'starving students'.
You need to have a plan, and both of you need to be on board with it. If one of us ever resented the sacrifices we were making, it could have gotten quite ugly. But we had faith.

Edited to add: We eloped. Our wedding cost $150. No diamonds. Sometimes you gotta choose, and we chose house. Our first diamond purchase was a 2 carat 3 stone ring 10 years after the fact. It was worth the wait.

 

[Momoftwo]

Most people do not have that much to put down on their first home. The key is to just get into the market using one of the many options available. After that, you use your equity to move up. We bought our first home (using VA) with $500 down, our second FHA, with $500 down and our 3rd with 5% down (sold for twice what we bought it for and used that to buy the next) and now on our fourth with 20% down and with the current market we have over 40% equity now in less than 2 years. Don''t be afraid to buy. You have to live somewhere and rent is paying someone else''s mortgage. Just remember, rent translates into more for a mortgage payment because of the tax write offs involved. Do some people buy more than they should? yes, but most are just fine no matter how they finance their home. Just as some people make bad decisions and buy more than they should, others let fear prevent them from buying what they can. There''s risk involved in most things you''ll do, and if you talk to those in their "dream" homes, they''ll tell you they took a risk along the way to get to where they are.

 

[moremoremore]

"Don't be afraid to buy."

DITTO!

Does California have coops? I don't think so, right? Well, that's ONE good thing about New York LOL. Coops are cheaper than condos (which they also have here) because you pay maintenance each month (the greater part of which is tax deductable). It's more than the condo maintenance payments. Coops are not "real property" - you own shares of stock in the coop corporation technically.

The bottom line is that you need a much smaller down payment b/c of the cheaper price. You just need to make sure you can pay the mortgage and maintenance each mo...But you absolutely still get to write off your mortgage and most of your maintenance.

When we were looking, there were about no condos in NYC and outskirts that were even reasonably priced (and hence the huge down payment)... And most of the places in the city are coops anyway.

We have been here for 1 1/2 years and only put about 15 grand of improvements into the place. It was reappraised for about 100 grand more than we paid. And most were shocked to learn it came in so low b/c some recent sales were more. It's the best decision we ever made!

But I guess this is moot if there are no coops in Ca. I'm too lazy to google!

 

[sasa]

I guess we keep putting if off talking to the local mortgage brokers about our options is because we are still trying to decide if we want to buy now or later. We are hoping the price will drop in the future.

BF here is a old fashion guy, he want to save up to at least 10 % down before we start looking...I guess it''s a culture thing...most people around us are either paying the house in full when they purchase or they have a big down payment....I don''t know where they get all that $$ from...well..I should said I don''t know where did all they''re parents get that $$ from?? I guess BF and I are the only couple I know that will not have help from our parents.

 

[con17]

Ok, I'm sorry...I haven't completely read everything in this post but wanted to say a couple of things. I have been in real estate and finance for the past 5 yrs. I know that a lot of people have their opinions and such but I do want to say that it is NOT completely horrible to go 0% down or even put 5% down for a downpayment. For those that are putting the 20% down they are doing that to avoid PMI. If you don't have the 20% you can get around paying this monthly expense by having a first and second mortgage. If you don't have the 20% there's not a huge difference b/w having the 5% or 10% by the way...

Second, if this is going to be your first home, and you do not plan on living in the home for more than...let's say 5 yrs. It isn't totally necessary to tie up all your money into your house. That money that you're putting down can be making you money in other accounts.

Finally, people are afraid of zero down or 5% down because they think that they're left with no equity..but the fact is, if you can afford your payments and in areas such as CA, FL..etc appreciation is great enough that you'll be gaining equity in 3-5 yrs. due to that..

I could say a lot more, but just wanted to give my "professional" advice.

 

[Momoftwo]

Actually tying up all your savings in a home isn't the best use of your money. You can invest what you dont' put into the house and earn a great deal of interest over the years til retirement and come out ahead of just having your mortgage paid off in 30 years (or less). The return on homes over 30 years is not as good as the return on a good investment portfolio. The stock market over 30 years trends to more than the 3-4% you'll average per year on the increase in value of your home. A lot of mutual funds and 401Ks average 6-8% per year return. We see our home as what will allow us to buy our retirement home in 20 years for cash. We'll then live off investments and retirement annuities. Even if we still owe something on the house, we'll come out with equity to buy our smaller retirement home which is actually what a lot of people do. The reality is whatever you put down on your home will allow you to afford the payments on whatever you qualify for. There's absolutely nothing wrong with having no equity when you move into a new home. Even in a slow market, most homes appreciate 1-2%/year. Most people see home purchases differently than other large purchases. Tell me what else you buy that increases in value instead of decreasing? I've seen people renting apartments and driving 40K cars. The smart move there would be to buy a house and a cheaper car. You'll come out ahead. Cars certainly depreciate. A lot of people have no trouble spending 10K on an engagement ring and there's definitely no guarantee that will appreciate much. You have to look at it as buying your home, not investing.

 

[con17]

I totally agree with you mom...but seems that so many people are informed that it''s the "best" thing to put a large down payment down!

 

[sasa]

so does banks like Washington Mutual or Bank of America offer better options compare to the ones on the internet like Lendingtree or Eloan?

I know Mara had good experience with eloan.com, anybody else got their loans thru the internet?

 

[MrsFrk]

Bobo, I know how you feel. All of my friends had lots of financial help from their parents, and it made me feel deprived and bitter sometimes, when I was younger.

It sounds like such a cliche, but the hard times that my husband and I went through made us such a strong couple, and strong and resilient as individuals.

It''s totally doable though- as mentioned, 20% is not the only way to go. Best of luck to you!!!

 

[Mara]

when we bought, we applied with 3 different mortgage brokers (eloan being one of them)

i worked with all three and they all knew that i had multiples. i was very candid about going with the one who got us the best rate and best deal.

eloan ended up being that one. esp when we knew we could save 5k in closing costs, they got us a no prepay penalty loan and at the rates we wanted.

now we are looking at refinancing and i will definitely try eloan again and also one of the other brokers we worked with last time. he says he is going to try to get us a no-cost refi meaning he eats all the closing costs for us (but don''t worry, he still makes $$!).

so we''ll see how it pans out. this time around, we want a low rate, to get entirely rid of our 2nd, and to not pay alot in closing costs.

 

[con17]

Hey Bobo,

Eloans and online sites usually get you to different brokers. I actually work for a broker, and have access to many banks. Wells Fargo, washington mutual, Bank of America...etc. The difference w/using a broker and going direct through a bank is that a broker will be able to give you many more options for loans that will make sense for you guys, where as individual banks will be limited with the programs/loans that they can offer you.

In addition to that, brokers typically work w/these banks at a wholesale level (those huge banks get a lot of volume from the brokers) so a lot of times, brokers may be able to actually get you a lower/better rate than going right to the bank. Let me know if you have additional question. I know it''s a huge purchase and can be quite confusing with all the information that everyone throws at you.

 

[sasa]

Thanks for all the great advice!

MrsFrk, like you said, I do feel deprived and bitter sometime....especially when my sister have everything taking care for her. The future father-in-law paid for their wedding photos, airline ticket (wedding is going to be in Taiwan), wedding receptions (they are having another wedding here) the House down payment. BF and I envy her...BF also feel pressure, because he know he can''t provide all these for me...


con17, what kind of dog is that on ur aviator? It look a lot like my dog when he was a baby.

 

[fire&ice]

The best thing is to start talking to a broker. They can lay out some options for you. Remember, they are in sales.

But, certainly can give you some idea of what you may require.

We went with a conventional 20% down loan for our second home. It was incredibily advantagous to close quickly (2 weeks). Our local "banker" was able to make that happen. They sold our loan to Principle Mort. When interest rates dipped, I went to principle and asked for their best deal, etc - keeping us as a client & passing on the savings of creating a whole new portfolio. Well, I guess that''s not the way it works. They came back with a reduced amount of closing cost - but WAY more than what we thought. A friend recommended a no closing cost broker. When I say NO I mean NO. Not only did it not cost us a penny (except for pre-paids) they GAVE us $400.00 back! Immediately, they sold our mortgage to guess who - PRINCIPLE! Which was bought by citi-corp.

There are lots of products out there.

 

[con17]

Hey Bobo! It''s actually my sister''s baby samoyed!! isn''t he cute?

 

[MrsFrk]

Date: 7/8/2005 4:03:22 PM
Author: Bobo ^__*
Thanks for all the great advice!

MrsFrk, like you said, I do feel deprived and bitter sometime....especially when my sister have everything taking care for her. The future father-in-law paid for their wedding photos, airline ticket (wedding is going to be in Taiwan), wedding receptions (they are having another wedding here) the House down payment. BF and I envy her...BF also feel pressure, because he know he can't provide all these for me...


con17, what kind of dog is that on ur aviator? It look a lot like my dog when he was a baby.

I sooooo feel you...I am Chinese (my husband is not), and as you well know, the parents tend to pay for everything. I also grew up in a rather wealthy area, and my family was most certainly not.

With the benefit of hindsight, I can tell you that for many of my friends, their parents- while their intentions were quite loving- did them no favors. They have no idea how to manage money, or what they want to do with their lives, because everything was provided for them. They are now in their early thirties trying to "find themselves".

It's a good feeling to look around you and know that everything you have you earned by the sweat of your brow.

 

[sasa]

Date: 7/8/2005 4:59:38 PM
Author: con17
Hey Bobo! It''s actually my sister''s baby samoyed!! isn''t he cute?

He is soooo cute!!! Oh...I love samoyed...My dog is a American Eskimo...they do look alike when they are a baby.