You just need $10,000, or you just need 3.5%, or you just need 20%, have you heard those words before? As home prices go up, those percentages seem to inch ever higher. While I have addressed zero down programs here: 100% financing rocks! The real issue is that not everyone qualifies for zero down, and on top of that, are the closing costs that less and less sellers are willing to negotiate.
Why is saving for a down payment wise?
Strictly speaking, it shows your ability to think beyond the expenses of the moment and to be able to have something set aside for the future unexpected events. For example, a “rainy day” fund for loss of work, unexpected expenses like medical, legal, etc., and just to have money set aside to put down on your next major purchase, like a home. 🙂
Why is it so hard to do?
Because we tend to think not too much farther ahead than the next paycheck. And there are countless marketers advertising for the same thing: just $X a month will get you what you want today, with no mention (except in very fine print) of the consequences long term (how many years you will have that debt, usually long after it’s of any value to you anymore). We literally have to break the “consumerism” mindset and start thinking long term, like if I do this, then that could happen. And we have to see the benefit of long term planning. Note I said planning, not wishing.
Why is it crucial to bridge that gap?
Simply put, learning to save will change your life. Some ideas of savings are simple, like make your coffee at home, or don’t eat out, or buy at a discount. All of that is fine, but the holding money back, putting it away somewhere, is often lost in how to save $2. The mindset has to be “I am going to pay myself first,” or “the piggy bank gets the first dollar(s) I earn.” This habit will then grow and you will look for more ways to save to put more money aside. Simply saving by discounting your expenses may just lead to finding yet another way to spend it. But learning to put aside money first can lead you to always have something in reserve, no matter what you make or what your expenses and debts are.
What about a down payment?
The funny thing about learning to save is that it often leads to a better credit score, since you have money to avoid collections, to reduce debt, and to keep from spending on credit in the first place. So literally, a down payment become not easy, but easier. Beyond a down payment is the reserves, or money for future needs (like moving, putting in blinds, carpet, or painting, and having that first payment next month). The more you have to put down, the more you have in reserves, and the better the credit score, simply put, the easier it is to get a loan. And it all starts with the ability to save…
Start here for your options: Your favorite mortgage banker