Some buy­ers might need ‘money diet’ to save for a home

The Palm Beach Post - Residences - - Residences West - Ellen James Martin

Con­trary to pop­u­lar be­lief, these days youmay not need a whop­ping 15 to 20 per­cent down to fi­nance a home. Though mort­gage-lend­ing stan­dards re­main strin­gent, low down pay­ment op­tions are be­com­ing more widely avail­able. Still, nearly all home­buy­ers need cash, if only for clos­ing costs and mov­ing ex­penses.

Are you cash-tight yet still want to take ad­van­tage of to­day’s bar­gain home prices? If so, amass­ing a war chest of cash could make your home­buy­ing of­fer even more com­pet­i­tive.

“The more cash you have, the bet­ter deal you get,” says Mary Kuehn, a vet­eran real es­tate agent af­fil­i­ated with the Coun­cil of Res­i­den­tial Spe­cial­ists (www.crs.net).

As Kuehn notes, home­own­ers sell­ing in to­day’s mar­ket are es­pe­cially ner­vous about a deal fall­ing through due to a fi­nanc­ing glitch. That’s why some sell­ers who re­ceive mul­ti­ple bids will take a slightly lower of­fer from pur­chasers who have more cash in the deal, re­al­iz­ing they’re prob­a­bly bet­ter fixed fi­nan­cially.

For those who be­lieve the econ­omy will grad­u­ally im­prove over time and that cur­rent home-buy­ing bar­gains won’t last for­ever, Kuehn says the sac­ri­fices in­volved in a crash sav­ings pro­gram could be worth it.

Here are point­ers for those who wish to em­bark on a crash sav­ings pro­gram to buy a home:

• Ex­am­ine your at­ti­tudes about spend­ing. What stops peo­ple from stick­ing to a money diet? Fi­nan­cial plan­ners say emo­tional im­ped­i­ments --not a lack of pro­fes­sional fi­nan­cial guid­ance --are of­ten to blame.

“Peo­ple come to fi­nan­cial ad­vis­ers hop­ing for a mir­a­cle. But we’re not mir­a­cle work­ers,” says Shawn Koch, a plan­ner af­fil­i­ated with the Gar­rett Plan­ning Net­work (www.gar­rett­planni ngnet­work.com).

Koch says many peo­ple at­tempt­ing a crash sav­ings pro­gram first need to deal with the rea­sons for their bad money habits, such as im­pulse spend­ing or a sense of ma­te­rial en­ti­tle­ment.

• Start by do­ing an in­ven­tory of your cur­rent fi­nan­cial sit­u­a­tion. A ma­jor ob­sta­cle to sav­ing for a home is un­con­trolled day-to-day spend­ing, Koch says. But be­fore you can de­cide how to re­al­lo­cate your funds, she says you need to re­view where your money has gone for a pe­riod of sev­eral months. This can be done ei­ther with pen and pa­per or a per­sonal fi­nance tool such as Quicken.

Such a re­view can bring sur­prises, Koch says. For ex­am­ple, she says many of her clients are shocked to learn how much they’re spend­ing on restau­rant meals, car­ry­out food and cof­fee breaks.

Do­ing a spend­ing in­ven­tory can be time-con­sum­ing be­cause you must sift through credit card and check­ing ac­count state­ments.

• Cre­ate a bud­get that lets you save for your home-buy­ing goal. Given the ris­ing cost of liv­ing, Koch says it’s hard to trim ex­penses enough to al­low for a se­ri­ous sav­ings pro­gram. Still, she urges savers to ex­am­ine their largest out­lays, in­clud­ing reg­u­lar su­per­mar­ket spend­ing. “Peo­ple know restau­rants are costly. But gro­cery store food can also add up fast,” says Koch, who rec­om­mends that clients buy fewer pro­cessed foods, do more home cook­ing, mon­i­tor food waste closely and con­sider tak­ing bag lunches to work.

Trans­porta­tion costs can also put a big dent in most house­hold bud­gets. So Koch ad­vises savers to chal­lenge their long-held as­sump­tions about car own­er­ship. For in­stance, she says you should ask your­self if ev­ery adult in your house­hold needs a car. Would pub­lic trans­porta­tion or car­pool­ing be a re­al­is­tic al­ter­na­tive for com­mut­ing that could lead to hefty sav­ings for gas, in­surance and car re­pairs?

She says many will­ing to sur­ren­der own­er­ship of a car might wish to con­sider join­ing a car-shar­ing ser­vice such as Zip­car.

Such com­pa­nies, which al­low mem­bers to re­serve a ve­hi­cle on­line 24 hours a day, are de­signed to serve those who need only oc­ca­sional use of a ve­hi­cle for short pe­ri­ods of time. Koch also rec­om­mends you ex­am­ine your cell phone bills in search of sav­ings.

• Sign up for an au­to­matic sav­ings plan. Be­cause they live pay­check to pay­check, many peo­ple find it hard to sum­mon the dis­ci­pline to ex­tract a chunk from each pay­check for sav­ings. And they fear au­to­matic with­drawals from their pay.

But fi­nan­cial plan­ners say au­to­matic with­drawals can be the an­swer for peo­ple who aren’t me­thod­i­cal savers.

Ellen James Martin is a Uni­ver­sal Syn­di­cate colum­nist.

If you’re look­ing to buy a house, you need to save down-pay­ment money any way you can.

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