Would you believe me if I told you that one year from today you could be unlocking the door to your first home?
As they say, the proof is in the pudding and we’ve got the recipe: A little cost cutting here, a touch of income building there and you’ve got enough money for a down payment, which has long been the No. 1 barrier to homeownership in America.
One year might seem like a lofty goal, but it’s more doable than you think. A survey by the National Association of Realtors found that Millennials (buyers 37 years older and under) were the largest share of home buyers in 2018 at 36%. Of that group, 65% were first time home buyers.
And the majority of millennials who bought a home had been saving for a down payment less than a year!
How Much Do You Have to Save for a Down Payment?
The median down payment for first-time homebuyers is 6%. That comes out to a $10,950 down payment, considering the median price of a house for a first-time home buyer is $182,500. Over the course of a year, you would need to save $912.50 per month or $210.58 per week to meet that goal.
Conventional mortgage lenders like to see a 20% down payment. That’s the threshold at which you can bypass private mortgage insurance (PMI) and get an optimal interest rate. But it’s difficult to achieve in today’s economy when student loan and credit card debt make it difficult for young consumers to put money away.
Fortunately, there are loan programs such as an FHA loan, which is a mortgage insured by the Federal Housing Administration (FHA), that have less stringent qualifications. FHA loans allow a down payment of 3.5% with a minimum credit score of only 580.
Freddie Mac offers “Home Possible” and “Home Possible Advantage” mortgages with down payments as little as 3 to 5% for low- to moderate-income buyers. The Home Possible loans are especially advantageous for people living in expensive big cities or underserved communities.
Tips to Save for a Down Payment in 1 Year
So, you need to save around 11 grand for a decent down payment on your first home, and you only have one year to do it. No worries, start by opening a savings account. Next, write out a detailed budget listing all of your expenses and income.
Shave a little here and add a little there each week, and you’ll meet your goal before you know it! Here are some easy-to-follow tips to get you there:
- Bring Lunch to Work: $1,651 gained and $9,299 left to go
It shouldn’t come as a surprise that brown-bagging your lunch to work saves money, but the amount is almost shocking. The average cost of eating lunch out is around $8.80. Packing your own lunch costs about $2.45. That’s a savings of over $30 per week.
- Cut the Cable Bill: $1,020, $8,279 left
Cord cutters save an average of $85/month by dropping their cable service according to Fortune. That includes the cost of internet and alternative streaming options, which totaled $118 compared to $203 for those that still have cable.
- Kick the habit: $2,040, $6,239 left
A cup of coffee from Starbucks costs $2 or as much as $4 for a latte, while brewing your own will run you 18 cents.
Cocktails cost about $9 at most bars and restaurants, and a pack of cigarettes is about $6. If either is a habit for you, cutting back or breaking the habit altogether might be able to net another $1,000.
- Lower Credit Card Interest Rate: $201, $6,038 left
A survey from CreditCards.com claimed 8-out-of-10 people who asked their credit card company to reduce their interest rate, drop annual fees or waive late charges were successful. The average American has $4,087 in credit card debt with an average interest rate of 17.07%. Many cards start out with an introductory rate over 20%. Lowering the interest rate from 22% to the national average would save $201.
- Sell Unused Junk: $1,050,$4,988 left to go
Challenge yourself to sell $20 of things you no longer use each week. Not only will this bring in some extra coin, but your friends will thank you for decluttering before they have to help you move.
List some of these items you might have laying around your apartment that belong on Craigslist, Amazon, EBay and Facebook Marketplace and see how much you can get:
- Musical Instruments
- Power tools
- Exercise equipment
- Sports equipment like golf clubs or fishing rods
- Cooking appliances
- Board Games
- Camping Equipment
- Save Tax Return: $3,050, $1,938 left to go
The average tax return was $3,050 for an individual filer in 2017. That alone is over a quarter of the total goal.
- Get a part time job: $1,938, Mission Accomplished! $12,950 Saved
There’s only another $37/week to cover after totaling up the savings thus far. If you can’t carve that out of your current income, look into getting a part-time job with flexible hours. There’s plenty of ways to make an extra $37, and one minimum wage shift on the weekends would cover that.
The larger the down payment the lower the monthly payment will be.
You’ll have to work for it, but adding more income each week makes a $15k down payment or even $20k realistic.
Given the same budget cuts, you would only need an extra $115 per week to make a $15k down payment. Better yet, a $20k down payment could get you to the 20% lenders are looking for on a $100k starter home and the optimal interest rate. Again, with the same budgeting, that would require an extra $211/week.
It’s much harder to hit those targets with a $7.25 minimum wage side job – that’s about 16 hours per week for the $15k down payment, or 28 hours/week for the $20k down payment.
Bar tending or waiting tables on the weekend could bring in the extra couple hundred dollars you need. If that isn’t your speed, there are several ways to make money on your own.
Driving for Uber, Lyft or one of the many delivery services like Instacart, Doordash, Grubhub or Postmates will give you the flexibility and earning potential to match your schedule and budget.
TaskRabbit is a good way to make money on the side, and could be good practice doing handy work before becoming a homeowner. Fiverr and UpWork give anyone the opportunity to freelance.
It might take some discipline and patience to reach the goal of saving a down payment in one year, but when you break it down into small chunks, it starts to add up quickly.
Get Downpayment Assistance
Lautz, J., Dunn, M., Snowden, B., Riggs, A., Horowitz, B., (2018, March 14) Home Buyer and Seller Generational Trends Report 2018. Retrieved from https://www.nar.realtor/sites/default/files/documents/2018-home-buyers-and-sellers-generational-trends-03-14-2018.pdf
Kolomatsky, M (2017 April 21) Who’s Buying a First Home? Retrieved from https://www.nytimes.com/2017/04/21/realestate/first-time-home-buyers-statistics.html
Freddie Mac (2018) Home Possible Mortgages. Retrieved from http://www.freddiemac.com/homepossible/
Anderson, T (2017 March 27) Asking Credit Card Companies to Lower Rates and Fees Works 80% of the Time. Retrieved from https://www.cnbc.com/2017/03/27/asking-credit-card-companies-to-lower-rates-and-fees-works-80-of-the-time.html
Moss, G (2015 October 17) Here’s How Much Money You Could Save by Making Coffee At Home. Retrieved from https://www.businessinsider.com/heres-how-much-money-you-could-save-by-making-coffee-at-home-2015-10
Pressman, A (2018 July 23) Why Cord Cutters Actually Are Saving a Huge Amount Over Cable Subscribers. Retrieved from http://fortune.com/2018/07/23/cord-cutters-netflix-average-bill/
Herman, J (2018 June 6) Credit Card Debt Statistics. Retrieved from https://www.creditcards.com/credit-card-news/credit-card-debt-statistics-1276.php
IRS (2017 March) 2016 Data Book. Retrieved from https://www.irs.gov/pub/irs-soi/16databk.pdf
Hamm, T (2013 October 25) Does Brown-Bagging Your Lunch Really Save You Money. Retrieved from https://www.thesimpledollar.com/does-brown-bagging-your-lunch-really-save-you-money/
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