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Got Savings? How To Build A Down Payment For A Home In 1 Year, 3 Years, Or 5 Years

Thinking about buying a home in the near future? Whether it’s a home for sale in Kihei or Wailuku, you’ll need a solid savings fund to accomplish this goal. In addition to covering such expenses as closing costs, escrow, and initial payments on taxes and insurance, cash is necessary for a down payment on your mortgage.

Planning to have 20% of a home’s purchase price to use as your down payment is a smart move. It not only makes you a more attractive borrower to a lender, but it also makes you a more reliable buyer. The more money you put down, the less likely your financing (and your home purchase!) will fall through.

A 20% down payment is a great savings goal, but it’s also a lot of cash. Let’s say you want to buy a home that costs $250,000. You’ll need $50,000 in cash to put down. That’s no small number. But you can make it happen in the near future. Here’s how you can work to build a down payment in one year, three years, or five years.
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Raise a down payment in one year

If you target this goal, know upfront that you’ve given yourself a serious challenge. Building a savings fund of $50,000 in 12 months will require you to set aside $4,167 per month and take some extreme measures to make it happen. First, look at every single dollar you can cut from your current spending. Here are a few ways to aggressively trim your expenses.

Move in with a friend or family member to slash your rent. In addition, you could offer to do work around the house or help out in other ways to cut your rent further (or even live rent-free!).

Sell useful but not strictly necessary assets, like your car. You can also comb through all your possessions to determine what you could sell, from old collections to used textbooks to clothes and more. Consider consignment stores, online yard sales, and other ways to sell your stuff.

Get rid of every nonessential expense, no matter how inexpensive it may feel. That can include everything from services like Spotify and Netflix to discretionary spending like shopping or new tech.

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Downgrade essential services for cheaper options. Perhaps you can reduce your insurance coverage and drop the cost of your monthly premiums. Other places to consider: your cellphone plan and your groceries. Your new rule should be “If I don’t need to buy it, I won’t.” Remember, you need to bank $4,167 every month. Many people’s total monthly budgets don’t add up to the amount you’re trying to save!

Save for a down payment in three years

While it’s still an ambitious savings goal (you’ll need to save $1,389 per month), your approach won’t need to be quite as extreme. However, the basic steps remain the same: Cut unnecessary costs and look to increase your income so you have more cash to save. Here are a few ideas to help you eliminate expenses and immediately save hundreds per month.

Switch to a streaming service. The average cable bill costs about $100 per month. Most streaming services are less than $10 per month. This will give you a monthly savings of $90!

Reduce the number of meals out you buy each week. If a daily lunch costs you $10 but packing your own costs only $4, that adds up to a monthly savings of $180.

Eliminate expensive entertainment. Even one date night to the movies per month can put a dent in your efforts! Two tickets, sodas, and a large popcorn typically cost about $35. In comparison, a rental from a video kiosk (or your streaming service) that you can enjoy at home with microwave popcorn? Maybe $5.

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Cut back on your vices. Beer, wine, and cigarettes don’t come cheap. If you’re used to buying a bottle of wine and a six-pack at the store each week, you may be spending close to $65 per month on alcohol alone. Cut back to just once a month (try the no-spend weekend!), and you could be looking at a monthly savings of $45.

Work out at home. There are countless alternatives to a pricey gym membership, from fitness communities to printable workouts to YouTube videos and more. You can slim down both your body and your budget for a monthly savings of $60 per month.

Negotiate your bills. Call your service providers, insurance companies, and cellphone carriers and ask about lower-cost options. You can switch to a more basic service, request discounts, or consider cutting the service altogether. This can add up to a monthly savings of $50 or more!

Making the changes in this list could save you $455 per month, which means you’re down to finding about $1,000 in your cash flow to allocate to your down payment goal. Additional sacrifices could include cutting dinners out to only twice a month. It might mean walking or taking public transportation instead of grabbing an Uber. And it may mean simply not buying things you don’t actually need.

Giving yourself three years also lets you make sustainable and lasting strides with earning more. You can develop a side hustle and turn that into a strong income stream. Or you could work your way up at your current position to take on more responsibilities that come with higher pay.

Every time you earn a raise, get a bonus, or make extra income, contribute it straight to your savings fund for your $50,000 down payment. That will either allow you to reach your goal sooner or require you to cut back less in spending.

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Build your down payment in five years

This timeline gives you the most flexibility in saving your $50,000 down payment. You’ll need to save about $834 per month to meet this goal. It’s still a lot of money but completely doable if you’re willing to cut back in places you currently spend. Use the tips above to help you cut costs and free up more cash for your down payment.

You might also consider investing your down payment savings in a taxable brokerage account. With five years until you need the money, placing it in the market enables your money to work harder for you. But remember, all investments carry risk. Don’t take this approach if you’re uncomfortable with the fact that you may end up earning 5% or more — but you could also only break even or even lose money.

The biggest challenge in saving $834 per month for this length of time is staying focused. To help, create an automatic transfer from your checking to your savings each month so you know that money consistently moves to your down payment fund even if your attention sometimes wanders to other, nearer-term issues.

And of course, working on earning more during this time will help too. Just as you would if you shot for the three-year goal, you can work to make lasting, big-impact changes to your earnings. If you’re entrepreneurial, that might mean starting something on the side and slowly growing that to a full-time business that generates more revenue than your current gig. The possibilities are endless, and with five years, you have much more time to test different paths and figure out what works best for you.

When you have successfully saved up for your down payment, call me and let us get your dream home ready!


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Why Pre-Approval Should Be Your First Step

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, knowing your budget will give you the confidence of knowing if your dream home is within your reach. 

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Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.” 

Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.

In real estate, it pays to be informed in the process. Get your pre approval and let’s work on getting your dream home in a snap–I’ll be glad to help.


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6 Surprising Things That Can Stall Your Mortgage Approval

Your offer has been accepted on your dream home and you were pre-approved for a mortgage. Now it’s just a little more paperwork until you’re hosting your first BBQ, right? Not necessarily. Even one slip-up before closing can cause stressful delays. Watch out for common stumbling blocks that can stall your closing by following these six tips:

1. Avoid a big purchase or a new credit card

Right before you close, the lender will do a final check on outstanding debts and credit inquiries. Any new debt could present a problem, so hold off on buying new furniture or applying for a credit card while waiting to close.

“I tell people to be as boring as possible: Go home, don’t spend any money, just watch TV until I get you the keys,” says Brad L’Engle, a certified mortgage planner in Folsom, California. “I had a client take out a Mervyn’s credit card to save 10 percent on a $33 purchase, and that popped up during the approval process and delayed it,” he says.

Whatever it is you think you need, wait until after your closing to buy it.

2. Don’t change or leave your job (if possible)

Try to avoid any changes in your job status while waiting to close. If there are any, inform the lender right away. Judy Richardson, a realtor at Red Oak Realty in Oakland, California, recently represented a buyer who was pregnant and took her maternity leave early. “When the lender called to verify employment, her employer said she was on maternity leave.” The buyer ended up needing to obtain written confirmation from the employer that she would return following her maternity leave, and the escrow closed three days late.

“The regulations around the loan are very strict, so buyers should be extraordinarily diligent with everything regarding credit, banking and employment when escrow has yet to close,” Richardson says.

3. Think twice about appealing an appraisal that’s lower than the purchase price

Since the subprime mortgage crash of 2008, the recession and subsequent financial reforms, there is much tighter regulation of the apprareal-estate-investmentisal process. Gone are the days when homes automatically appraised for the purchase price offer. In a competitive market where many homes receive multiple offers, it’s not uncommon for the appraisal to come in lower than the winning offer.

“If the appraisal comes in low, you can appeal the appraisal or the parties can renegotiate the contract,” L’Engle says. Either of those options will require more paperwork and potential delays, however. Because an appeal involves paying for another appraisal and there are no guarantees of success, many buyers and sellers choose to negotiate the contract instead.

4. Closely monitor the status of agreed-upon repairs

Whether it’s a termite problem or a new water heater, repairs can cause delays if not negotiated and executed properly. Any repairs the seller agrees to complete must be done satisfactorily before the buyer and lender will close a deal. “Sometimes sellers and buyers will go back and forth for weeks about repairs to the property,” L’Engle says.  “If it was an issue flagged by an appraiser, now the appraiser has to go back out and verify that it’s been done.”

5. Avoid any open disputes on your credit report

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Lots of people find erroneous information on their credit reports and dispute it, but if you are applying for a mortgage, think twice. After you file a dispute, the creditor has 30 days to respond. Lenders usually won’t approve a mortgage until the dispute is removed.

Being proactive is the best way to avoid this problem: “It’s always important to run your credit annually so you can deal with fixing any credit issues prior to getting too deep into the process of looking for a home,” Richardson advises.

6. Be sure the title company checks for problems prior to escrow

Most of the time, the title company will uncover and resolve any outstanding liens or other problems with the title long before escrow. But if not, problems can arise. “If a title company does not pull a pre-escrow [report] prior to the property coming on the market, then a ‘surprise’ lien—even as small as a garbage lien—can cause delays,” Richardson says.

“I once had a transaction where a business lien was found on the seller side the day before closing,” she says. “Any lien needs to be addressed prior to close of escrow or the property will not transfer. These liens can take days or even months to clear.”

One more piece of advice: Slow it down

Brad L’Engle has one suggestion for all home buyers and their realtors: “In a tight housing market, many agents feel the only way they can get their client’s offer accepted is to close quicker. I try to tell people to write [the contract] for 45 days and give themselves a little bit of breathing room. What’s another two weeks? That way you will have a smoother, more relaxed transaction.”

Get approved on a mortgage before hunting for your dream home. When it’s all settled, give me a call and let’s get you started in living your Maui dream!


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You Need a Professional on Your Team When Buying a Home

Many people wonder whether they should hire a real estate professional to assist them in buying their dream home or if they should first try to do it on their own. In today’s market: you need an experienced professional!

You Need an Expert Guide if You Are Traveling a Dangerous Path

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The field of real estate is loaded with land mines; you need a true expert to guide you through the dangerous pitfalls that currently exist. Finding a home that is priced appropriately and is ready for you to move into can be tricky. An agent listens to your wants and needs, and can sift through the homes that do not fit within the parameters of your “dream home.”

A great agent will also have relationships with mortgage professionals and other experts that you will need in securing your dream home. 

You Need a Skilled Negotiator

In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer to the possible renegotiation of that offer after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.

Realize that when an agent is negotiating their commission with you, they are negotiating their own salary; the salary that keeps a roof over their family’s head; the salary that puts food on their family’s table. If they are quick to take less when negotiating for themselves and their families, what makes you think they will not act the same way when negotiating for you and your family?

If they were Clark Kent when negotiating with you, they will not turn into Superman when negotiating with the buyer or seller in your deal. 

Bottom Line

Famous sayings become famous because they are true. You get what you pay for. Just like a good accountant or a good attorney, a good agent will save you money…not cost you money.

Find yourself a pro real estate agent who can walk you through the entire process of owning your home. A good one is worth the expense, and can make a ton of difference to your home buying experience.


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Here’s Your New Year’s Resolution: Buy a Home Early in 2017

Let’s finish out the year with a holiday basket packed with good news: We’re ending 2016 in better economic shape than in recent years. Unemployment is down to 4.6%, its lowest level since August 2007; consumer confidence is higher than it has been since July 2007; and home values nationally and in more than half of the major markets in the country have recovered.

We’re employed, confident, and have recovered equity in our homes. The stock market is up and flirting with all-time  highs.

That sounds like the perfect backdrop to buy a home in 2017, whether it’s a first-time purchase, a move up, a downsize, or a relocation. Right?

Maybe. But before you take the plunge, you’re going to have to come to grips with two factors that are now decidedly worse for buying than they were at the end of last year: Mortgage rates are higher, and the inventory of homes for sale is lower.

Mortgage rates are a bit more than a quarter of a point higher now than they were at the end of 2015. That translates into payments that are 3% higher. Still, that increase can be managed by most.

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The key challenge for potential buyers is that rates are now likely to move up more—as much as three-quarters of a point in 2017. That would be increasing payments by an additional 9%.

Tight inventory levels have been a problem for more than four years. As sales have grown, supply has fallen. We’ve seen the age of inventory—how long homes sit on the market—drop dramatically as home buyers burn through the available stock.

We’ve had an abnormally strong autumn for home sales because frustrated buyers are keeping at it even after the end of peak buying season. We also saw more new buyers emerge later in the peak season. Then as mortgage rates started to move up in October and then accelerated their rise in November and December, a new sense of urgency was added to the mix.

As a result of this unusually strong demand in the slower time of the year, we will end this year with at least 10% fewer homes for sale than we had last year. And we thought last year was bad!

Get started on your home hunt now

If your New Year’s resolutions include buying a home, I would suggest getting an early start. January and February typically are the slowest months of the year for sales, as harsh weather in most of the country dissuadeopen_house_signs most potential buyers.

Buyers in January and February face far less competition from other buyers, yet inventory is only marginally lower than in the spring.

Since mortgage rates are likely to move up as the year progresses, the beginning of the year represents the best time to lock in rates before they get even higher.

Real estate reports show that time is almost running out for low mortgage rates. Make 2017 the year for you to make it finally happen–having a place you can call your very own home!

Give me a call and let us get you started in your home buying journey.