Low mortgage rates are a strong motivational factor for wannabe homeowners. But in an era of high real estate prices, many still can’t obtain a property without a crash savings program that involves significant lifestyle changes.
“You don’t have to ruin your life forever, but you may have to temporarily reset your priorities in a big way,” says Michael Crowley, a longtime Oregon real estate broker.
Crowley tells the true story of one client, a 29-year-old in the fire sprinkler business who was desperate to move away from his parents’ house. Given his modest salary and scarce savings, he had to sell his pickup truck to generate cash for a minimal down payment and closing costs.
“He knew the sacrifice would be worth the short-term inconvenience,” says Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
You could also save money by taking a second job --perhaps as a driver for Uber or Lyft. Income from short-term moonlighting won’t necessarily help you to buy a better house. But the extra cash could improve your credit standing if you use it to pay down credit card debt.
Lawrence Yun, the chief economist for the National Association of Realtors (realtor.org), says the fact that mortgage rates are now hovering near historic lows has increased homebuyer eagerness.
“Even though home prices are rising faster than income, national buying power has increased by 6% because of better interest rates,” Yun says.
Are you determined to purchase your first home in 2020? If so, these pointers could prove helpful:
-- Assess your current spending patterns.
Celia Brugge, a Tennessee-based financial planner, says Americans slip easily into temptation when it comes to discretionary purchases.
“It’s easy to fall into impulse purchases for clothing, shoes or electronics. And eating out is a huge category that can easily consume $500 a month or more,” says Brugge, who’s affiliated with the National Association of Personal Financial Advisors (napfa.org).
Brugge urges anyone trying to embark on a savings program for the purchase of a home or any other major financial goal to first go through what she calls “the boot camp period.”
During this initial phase, she suggests you do an inventory of where your money has gone during a recent three-to-12-month period. You can do this by reviewing the entries on your checking or credit card statements and then summarizing your outlays.
Another handy tool for tracking spending that Brugge likes is available through the website of a company called Mint (mint.com). Through its free software, Mint lets you expedite the budgeting process by easily identifying and organizing your transactions.
Once you know where your money is going, it’s time to start making cuts in low-priority categories.
She says many people find that low-cost social activities, like inviting friends over for a potluck supper, are more gratifying than recreational shopping.
In addition, Brugge says many would-be homebuyers can find savings by cutting off their cable TV and instead tuning into free television options available through the internet.
To stay on track and be accountable for their spending, Brugge advises couples to set regular times, as often as weekly, to allocate 15 minutes or so reporting to each other on their recent spending.
-- Take a serious look at your automotive outlays.
Gerri Detweiler, a personal finance expert and author, agrees with Crowley that many people take their need for a late-model vehicle as a given. But to save for a home of your own, you may need to downscale your expectations in this category.
“Owning a new car is not a necessity, though some people treat it as one,” says Detweiler, who drives a Ford Escape she bought used.
In the ideal world, those with a big savings goal will consider selling a vehicle they own and commuting by rail or bus until they reach their savings goal, she says. Another option is to carpool with a colleague from work.
-- Attempt to reduce your insurance costs.
Insurance brokers and salespeople can be persuasive when encouraging clients to maximize their coverage. But Detweiler says would-be homebuyers should examine their spending in this domain. For instance, you might find a way to reduce the cost of your auto insurance policy without compromising your core coverage.
“Shop around for insurance and also look into how much you could save by increasing your deductibles,” Detweiler says.
-- Arrange for an in-person interview with a mortgage lender.
Financial studies show that people save more if they have a concrete objective in mind. But how can you make your home-buying goal more tangible?
Detweiler says one approach is to visit a mortgage lender to determine how much you could afford to spend for a property and how large a down payment you’ll need.
Once you’ve established your borrowing ceiling, Detweiler recommends you embark on a very limited property search by stopping by a few open houses in the neighborhood you’ve targeted.
“Getting a quick overview of the market can prove highly motivating to help you save,” she says.
(To contact Ellen James Martin, email her at email@example.com.)