Thoughts On Saving For A Down Payment
Today I want to talk about how to save for a down payment. But here is a pro tip: you could erase down payment and write in anything you want, because saving is saving is saving.
But this is a big one. Besides retirement and probably taxes, your home will likely be the largest expense you will ever have to prepare for.
How Much Should We Put Down?
20% is the standard. But you can put down less. You’ll end up paying Private Mortgage Insurance and have a larger monthly payment. Which might be OK, or it might not.
You don’t want to be too stretched. I’m really comfortable with 25-30% of your income. A lot of this depends on where you live. If you are here in Utah, it isn’t so hard to pull off. But either side of the country, it can be really tough.
It Depends, But…
One thing remains true—you want to acquire as much of that down payment as possible.
Often times people will say, “Okay. We want to save. What can we do to cut back?” And sure there are dollars to be shaved here and there, but this is a big savings goal, so you will want to move big levers, like cars and vacations and big lifestyle changes.
Get A Raise
I say that flippantly, but maybe make it a goal, I’m going to land a 10 percent raise in the next six months. Back into that and look at what milestones you’re going to hit along the way and keep your manager appraised of that and how you’re doing. I’m working for a raise so I’m going to be doing this, this, this; stay in communication with them and land that raise. That’s one thing that really can move the needle for you.
Is Bigger Better?
Usually, most of the focus is on getting that down payment as quickly as possible, or getting it as large as needed. But another way to get there faster is to lower the barrier of entry. Maybe the best strategy isn’t getting the absolute most/biggest house you can afford.
I just encourage you to step back and assess the purchase. What do you really need? And attack it from that perspective. Make the goal smaller and you will get there much faster.
Just be sure to get a mortgage payment that doesn’t stress you out. At the end of the day, you want your budget to be flexible. You want there to be some wiggle room, so when life happens, you can follow Rule 3 and just adjust and keep going. You do not want to be house-poor where you’re sitting there with one hand tied behind your back and an ankle weight because you’ve got into a house that was more than you could, flexibly I’ll say, afford.
PS—Don’t Knock Renting
I just want to go on record as saying that renting is a legitimate, honorable thing to spend your money on. You are purchasing a roof over your head and outsourcing all property maintenance. It doesn’t sound too shabby.
So don’t think renting is just some awful thing. And please don’t say you’re throwing your money away when you’re renting; you’re not. You’re paying someone to provide a roof, and again, outsourcing maintenance, like a rich person would do. You’ve got a worker who’s doing all of your stuff for you. It sounds kind of posh actually.