In our last post, we talked about being prepared for the “phantom” costs of owning a home. In this post, we will give some tips on how to even think about buying a home… specifically how to save money for the down payment.
Low Incomes Make it Harder, but You CAN DO It
We get it. During this worldwide pandemic, people are struggling with low or no income. But this too shall pass. One of the things we know is that probate homes usually sell for less money than homes that are not in probate or in a trust or conservatorship. Even so, trying to save money for a down payment can be tricky on one income. Keep the goal in view, and you may get there.
How Much Will You Need for a Down Payment?
It depends on a few things.
The Type of Home Loan
Conventional loans tend to have higher down payment requirements ranging from 5 to 20%. FHA (Federal Housing Administration) loans may offer down payments as low as 3.5%. USDA and VA loans may require no down payment at all. They often carry Mortgage Insurance Plans that need to be taken into account. Check with us. The CREM Group has had lots of experience in home sales and home financing, with people in the biz who can advise you as well.
The Bank’s Assessment of the Level of Risk
The bank assesses the risk of your being able to pay back the loan. They use your income level, credit score, a credit report, and the loan-to-value LTV ratio. The higher the LTV, the ‘riskier’ the loan because you will owe more money.
The Down Payment + Closing Costs and New House Expenses
Save more than the down payment. You usually have to fund or finance taxes and insurance.
Do the Math
A $750,000 home with a 3.5% down payment (FHA is a good place to look for first time home buyers) would mean a down payment of $26,250. If you want to buy a home in five years, you would need to save $14.38 per day. ($26,250/(5 years x 365 days in a year) = $26,250/1,825 days = $14.38/day. It’s not a lot on the one hand, but it can cramp your style, too. See if you can reduce that amount! Below are some ways to start.
Twelve-Step Program
Research state and county programs for down payment assistance where there may be loan offerings that provide grants or subsidies.
ASK FAMILY MEMBERS FOR HELP
Parents, grandparents, uncles, aunts, siblings, etc., may be willing to gift you a nice birthday present and Christmas or Hanukkah check; or you can ask to borrow some of the amount you need with interest, and then pay it back monthly, or after you sell your cool new home.
BORROW FROM YOURSELF
You may have an investment account(s) such as an IRA, life insurance policy, or annuity. Check with an accountant for rules on this.
GENERATE A PLAN TO SAVE MONEY OVER TIME AND DEPOSIT TO AN EXCLUSIVE ‘HOUSE DOWN PAYMENT’ ACCOUNT
Some banks let you set up named sub savings accounts and let you do an automatic transfer into that account, so you don’t get your clutches on it. Also, put loose change from your pockets into a jar every day. It adds up after a while, but you have to get it to the bank and not spend it.
SELL THINGS ON EBAY TO GENERATE CASH
Maybe you have collectibles or unused exercise equipment pieces that are taking up space.
SPEAKING OF SELLING, SELL YOUR TIME
You could get another job, such as driving for Uber or UPS or Amazon.
GET A THIRD FLEXIBLE JOB, PERHAPS, SUCH AS TUTORING.
DROP YOUR TAX REFUND INTO THE HOUSE DOWN PAYMENT ACCOUNT YOU CREATED IN #4
Try not to spend any of it or save some of the refund for that HDP account!
REDUCE YOUR EXPENSES
Can you cut out $14.38 per day? Cancel any unused memberships. Work out at home with YouTube videos. Lower costs on utilities by adjusting thermostats and turning off lights. Change mobile phone companies. Bring lunch to work from home. (Saving $5 to $7 per day can cut the $14.38 to only $7-10.) Reduce Starbucks purchases to a once-a-week treat. Shop sales and consignment stores. Minimize dining out.
INSTEAD OF PAYING CASH FOR SERVICES, TRY BARTERING
Fix someone’s shower if they help you with electrical wiring, for example.
OFFER ANYONE YOU KNOW TO WORK ODD JOBS
like helping people move, walking their dog, washing their car, house sitting, or helping them with errands or chores.
RENT AN EXTRA BEDROOM
If the place you’re renting has an extra bedroom, offer to rent it to a friend that needs a room. A garage with space? Rent it to a neighbor who needs temporary storage.
ADD YOUR OWN MONEY-SAVING IDEAS. IF YOU WANT TO BUY A HOME, BE CREATIVE, AND START SAVING IMMEDIATELY BECAUSE HOMEOWNERSHIP IS A GOOD INVESTMENT.
As realtors for many years in Southern California and specifically as probate realtors, we at the CREM Group have seen that saving for a home requires discipline and creativity. Whether you’re looking in Orange County, LA County, or San Bernardino Counties, you will see properties of various prices and sizes come on the market all the time.
If you’ve saved for it, you will be ready to buy when your dream home becomes suddenly available. It might also be a good idea to pre-qualify yourself for a loan, to have better bargaining power, and to see if by increasing your income or the down payment, you can conceivably lower you interest rate and your payments. Also, be aware that to save money on a probate or trust home, you will have to wade through a lengthy probate process, which can take up to a year. Look at it this way: that’s more time to save more money.
When you look at a probate home or a non-probate home, you might decide on a fixer-upper if you’re particularly handy. Still, when you go to buy a home, remember to include a little extra in that savings account for unplanned expenses.
What we Recommend for Probate or Regular Home Buyers
- Do your homework. Read about financing. Pay attention to trends, and save every day. Try to keep your eyes on your goal of homeownership.
- Make a list of your expenses. (Okay. Make a budget.) Look for ways to make more, spend less, and save more.
- Reward yourself! Not extravagantly, but little prizes will go a long way toward helping you stay on the wagon. Every few hundred dollars, make a run to an inexpensive restaurant for a change, or go to the beach or get a gelato.
Work with Experienced Individuals
We are serious about this. Be sure to surround yourself with people (like the CREM Group) who are knowledgeable about markets, homes, neighborhoods, and lenders. The pandemic will end, and real estate transactions—whether probate, conservatorship, trust or otherwise—will return to normal. And with your savings in place, you will be ready to rock and roll.
As long time probate real estate agents and as attorneys working in and around all kinds of properties in Los Angeles and Orange Counties, the CREM Group has made sure we support our clients, so they know the alternatives to buying, selling, or renting probate, trust, and conservatorship homes and commercial properties in California.
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As always, contact us by email here if you have any questions about real estate, probate real estate, conservatorship, or trust real estate properties, especially in Los Angeles and Orange Counties in California.
Or directly:
Mark Cianciulli, Esq.
[email protected]
DISCLAIMER: This content is meant purely for educational purposes. It contains only general information about real estate and legal matters. It is NOT legal advice and should not be treated as such. We recommend consulting a legal or tax professional before acting on any material, opinion, or perspective described herein.
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COVID-19 Safety. As all of us at the CREM Group market and sell our inventory of probate, trust, and conservatorship homes for our clients, we adhere to the COVID-19 regulations set by the California Association of Realtors.