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