6 Tips for Making Home Ownership Attainable

The following is a guest post from our good friend Jason at WorkSaveLive. If you are interested in guest posting at Club Thrifty, please see our guest posting guidelines.

 

6 Tips for Making Home Ownership AttainableBuying a home is a major dream for most people as it offers pride of ownership and represents a sense of financial accomplishment. To have enough money saved for an outright purchase, or a good down payment, forces individuals and families to diligently budget and save. While there isn’t a science to the game, there are certainly strategies on how to save for a house.

 

Here are a few tips to help make owning a home possible:

 

1. Start Early to Build a Cash Nest Egg

While programs are in place to help first-time homebuyers, it’s still important to build up a cash reserve yourself. First off, you can avoid obtaining private mortgage insurance when you have a significant down payment (typically 20 percent of your purchase price). Second, having a decent down payment will give you some instant equity in your home.

 

2. Check Available Programs

Investigate Federal Housing Administration, State housing, and other entities concerning home ownership programs. These programs can help individuals and families obtain a mortgage with a lower down payment. At the WSL house, we personally used something called a “Rural Development Loan” which allowed us to avoid PMI while only putting 3% down.

 

3. Perform Due Diligence on What You Can Afford

An abundance of mortgage calculators exists on the internet to help you know your financial thresholds. Analyze how much you can afford to spend on a deposit and mortgage repayments. Utilize a mortgage calculator to determine the amount of your monthly repayments.

 

4. Shop Around for the Best Interest Rates

Unless you’re fortunate (and disciplined) enough to pay 100% down on a house, it’s likely you’re going to have to take out a mortgage. I’m often dumbfounded to hear how little people shop and compare mortgage interest rates between various lenders.

 

While saving .2-.5% on your loan’s interest rate doesn’t sound like a big deal, it could likely safe you tens of thousands of dollars over the life of your loan.

 

5. Delay as Long as Possible

Can you hold off your purchase for a few years? If you can, consider investing your savings for a few years and use compound interest to your advantage. Depending on the time you’re willing to delay your purchase, you can utilize CDs or find a high-interest savings or checking account. If you’re willing to wait 3 years or longer, then investing your money in the stock market may be a viable option and help add significantly to your down payment.

 

The longer you’re able to wait, the more of a down payment you’ll be able to save which will result in a lower monthly mortgage payment. If you can wait until you’ve saved up a 20% down payment, then you’ll also avoid wasting that $60-150/month payment for PMI.

 

6. Establish a Solid Career

Good careers are conducive to attaining the home you desire. Maintaining a solid employment record will make it easier to obtain a mortgage and will also give you the peace of mind knowing you can make your monthly mortgage payment.

 

Home ownership is attainable if you plan properly and work diligently to implement your plan.  Combined, all your financial decisions – from shopping around for the best interest rates to even choosing the best online checking account – will help bring you closer to your goals.

 

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Jason is the creator of the free e-course, How to Become Rich, and the founder of WorkSaveLive where he educates his readers on how to save money, pay down debt, and build wealth.

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Comments

  1. I waited for a couple of years so that I could save up a big enough deposit to be able to afford our house although I wish I would have started earlier and not bought that new car…
    Glen @ Monster Piggy Bank recently posted..The Cheapest, Easiest and Best ways to learn a Language in 2013My Profile

  2. I am in the midst of trying to save up 20% now. Since I live in a very expensive area (metro Boston), the homes here are @$400k so that 20% down is $80k. We started at “SmartyPig” account and basically aim to save $20-25k cash in it per year. We are only a year in and we are in our early 40s with 2 young kids.

    It will be a lot easier to save for this in another 1.5 years when we no longer have to pay $1600/mo for daycare but until then it is slim living to reach this goal but when we do, we plan to get a 15 year mortgage and just focus on paying that off before we hit 60.

    I really do wish we started earlier. We had owned a house before (in equally expensive San Francisco Bay Area) where we went 0% down back when that was a thing. We were totally house poor and luckily escaped selling the house for a small profit before the market in the area we lived in tanked. That is why this time we are trying to do it right.

    I am going to look into taking this year’s smarty savings ($20k) and investigate higher rates like CDs since we do have a good 2-3 years to go. Thanks for these excellent tips!

  3. Great article, Jason. Also, by putting more down as you suggested, buyers will have more of a cushion should the market tank again, and not be as likely to end up in a position of being underwater on their house, like so many are struggling with these days. Thanks for the great post!
    Laurie recently posted..Motivation: Learning From OthersMy Profile

  4. We plan on buying our second house next year. We are really working on saving for it and are really in no rush. I am however, looking online at houses nearly everyday!
    Michelle recently posted..Wedding Budget – Our Expected CostsMy Profile

  5. I think point #3 has to be the most important… banks and building societies are soo irresponsible in the amount they are willing to lend… their calculators need redesigned!!
    Savvy Scot recently posted..Planning Our 2013 Holiday to MexicoMy Profile

  6. I’m in the process of paying down my debt, after that I’m going to start saving for a down payment. I’ll like to save 20% to avoid mortgage insurance and make the monthly payment more affordable. I don’t think I would put my down payment savings into the stock market, too risky for such a short term investment.
    Jordann @ My Alternate Life recently posted..Why I Care About What I EatMy Profile

  7. Good post, Jason. There’s another reason to delay: my clients were often surprised at how much all the STUFF in the house costs. Ha! It’s incredible how all those little things add up.
    AverageJoe recently posted..How Successful People Accomplish More – Two Guys and Your Money 025My Profile

  8. My wife and I are working on moving, but it might take too long to save the 20% down. We want to move out of our neighborhood because it is not where we want to raise our son. There are some great houses around, but I don’t want to pay PMI again.
    Grayson @ Debt RoundUp recently posted..Overspending in America – The Sad TruthMy Profile

  9. If you can get a loan without PMI, I dont’ know that I’d always put 20% down IF you choose a house that is well within your means, especially for a starter home. Like you said, there are some loans that don’t require 20%. I hate renting, but that’s just my personal view. I would make sure you had plenty in savings for all the things that come up with the purchase of a new home. You don’t want to be house poor and then turn to credit cards to fund your repairs, landscaping, and furniture.
    Kim@Eyesonthedollar recently posted..How to Retire in Ten Years, Regardless of Your AgeMy Profile

  10. I like your last tip in particular. There are a lot of things that factor into a home purchase, but if you don’t have the consistent income to pay for it you will have a lot of undue stress.
    DC @ Young Adult Money recently posted..5 Ways to Invest in YourselfMy Profile

  11. One of the best things we did was shop around for a good interest rate. The differences were incredible but ended up going with a broker who beat them all. Sadly, after we bought the interest rate kept going down. The good part was that we found our home.
    Canadianbudgetbinder recently posted..The Pros and Cons of Homeschooling In Canada Part 2 of 2My Profile

  12. Johnny @ Our Freaking Budget says:

    We’ll be focusing on tip #5 for a while. It seems like everyone we’ve talked to over the last year who bought a home in the last five years has reiterated this point. Their responses to use considering getting out of rentals and buying our own home reminds me of this scene from Billy Madison: http://www.youtube.com/watch?v=rKTN5NHfwlQ

    Appreciate the tips for when that far, hopefully not-too-distant day does arrive.
    Johnny @ Our Freaking Budget recently posted..You Couldn’t Pay Me $$$ to ____My Profile

  13. I looked for a fixer for my first house. I wanted the most value for my first house. It was approximately a 25% discount. It wasn’t that bad, but needed carpeting, painting and new window coverings. I got a 3 bedroom, 1 1/2 bath custom home with a pool. I doubled my money in 3.5 years!
    krantcents recently posted..How to Prepare for 2013 or Any Year!My Profile

    • Great points! We’re in the process of considering a move from Missouri to Kansas and houses are considerably more expensive in the areas of Kansas we’re looking at. With that in mind, we’re looking at older houses that we could eventually upgrade over time. It’ll help keep the mortgage lower in the meantime and allow us to add the features we want down the road!
      Jason recently posted..FreeTaxUSA – Review and Analysis by a Tax AccountantMy Profile

  14. Good points Jason. Such a great time for first time-home owners, with record low interest rates and a flood of REO’s on the market it really is the perfect storm.
    Kyle | Rather-Be-Shopping.com recently posted..5 Things You Can Buy for a Dollar But Probably Don’tMy Profile

  15. #3 is definitely a big one. When looking for houses, we were told that we could afford a much more expensive house than we wanted. Had we listened to them, we would not have been able to accelerate repayment on our other debt (car payment, student loans, etc.) and put away emergency savings.

    One thing I would add, though, is that new homeowners need to budget for more than just the monthly mortgage payment. When deciding how much you can afford, remember to factor in other expenses like taxes, homeowners insurance, utilities, trash pick-up, lawn care, snow plowing, etc.

    Additionally, when saving for your 20% down payment, it wouldn’t be a bad idea to have a little extra set aside for any improvements or furniture you’d like to invest in when you first move in. These things can really take a bite out of your savings if you don’t plan for them.

  16. I couldn’t believe what we were pre-approved for. If we spent our entire pre-approval for our home we’d go bankrupt. We spent 60k less than what we were ‘qualified’ for…
    Catherine recently posted..The Sexiest Thing My Money Has BoughtMy Profile

  17. That dang-blasted PMI!!!! I’m with you, delay gratification just a little longer and you’ll set yourself up REALLY WELL! That being said, I still don’t regret my home purchase. But I do wish that PMI would dig a grave and sit in it!! Someday….
    Jacob @ iHeartBudgets recently posted..Budget Friday: Submission 7My Profile

  18. Jason, you are everywhere!!!! :)

    Saving money for your house is important. What hits a new home-owner pretty quickly, is the fact that you have to pay for ev-ery-thing. No one is covering a water/trash bill or paying the gas bill. You have to pay for it. Sometimes new homeowners forget that you have to pay for every single utility and don’t budget for it.
    Mackenzie recently posted..Would You Spend Money On It?My Profile

  19. I’m assuming US mortgages have set up fees like the UK? If they do it’s important to check them. They’re often added to the loan rather than being paid up front, if they’re high they can easily turn a seemingly good interest rate into a bad one.
    Money Bulldog recently posted..Why Cash Flow Is More Important Than Profit!My Profile

    • You bring up a great point, MD! Depending on the market, there’s a good chance that the buyer can negotiate “closing costs” into their offer to buy the house. For instance, as a seller I was prepared to pay about $3k worth of costs for the buyer to close the loan.

      With that being said, it’s possible that you won’t be able to negotiate out of those costs which means you’d need the cash at the time of the purchase (or in some cases you can roll the costs into the loan) – which would be best to avoid.
      Jason recently posted..FreeTaxUSA – Review and Analysis by a Tax AccountantMy Profile

  20. I had made the decision after I bought my car to max out my 401(k) with the extra money that I had been setting aside for my car, even though that would postpone home ownership. I think that worked out just fine because I ended up with a maxed out 401(k) and enough in my down payment fund to put 20% down on a condo within a year and a half! Not everyone has access to that level of funds though.

    When I bought my condo, I saved enough to put 20% down and cover closing and moving costs including buying some more furniture for the slightly bigger place. I determined how much I could afford by finding a place where the monthly cost (mortgage payment, HOA dues, and property taxes/12) was similar to what I was paying to rent (apartment and parking spot rent, building utilities). Sure enough, I saw zero increase in my housing budget moving from my last apartment to my condo! In the end, I could have put more than 20% down, but not quite 25%, so it was worth it to keep the extra cash on hand. I ended up making a huge pre-payment within a month of closing with some of that extra cash and then refinanced < 6 months later to an even lower rate once I had 25% equity. I think that it made sense for me to get into the condo with "only" 20% down and then refinance when I had 25% equity since my overall housing costs didn't change from renting and if I'd kept renting, they would have gone up.

    I am now paying down my mortgage aggressively (I plan to pay it off before the ARM resets in 5 years) so that when I sell the condo eventually (in 5-10 years) and buy a house, I will have a significant down payment available!
    Leigh recently posted..January savings planMy Profile

  21. From personal experience I would say don’t buy a fixer-upper as your first home. Even if you’re really good with your hands, there are so many things that can come up that it can become easy to get over your head.
    Justin@TheFrugalPath recently posted..Improve Your Financial Situation One Step at a TimeMy Profile

  22. I totally agree on putting down the 20% it can save you a small fortune by going this route. However, one other thing I also suggest is working with a smaller local back instead of one of those big monster mega banks. Theirs just something I love about the fact that I can walk in my local bank and where people know my name and I can talk to someone one on one about my situation. I feel this helps a lot when you’re not only buying a home but owning it as well.
    Chris @ Stumble Forward recently posted..How to Control Your Debt to Income Ratio – A Guide For BeginnersMy Profile

  23. Many people think they will live in the same house forever.Think of it as your starting house. If you are able to get into a house without a downpayment (or as small as possible) do it. Rent is dead money (and we are landlords).Make prepayments as often as you can. Don’t go and buy all new furniture and appliances for the new house.
    As they need replacing,do it then. Other options are considering properties, where you can basically live ‘free’. We live in a 5 unit apartment house. The income from the other units mean we live free. If you saved the portion you wold have paid, you can use this as a deposit on a house, and then rent out your unit. We actually did this in reverse. We rent out our large family home (kids all grown now) and basically live free now. Learn to think ‘outside the box’.

  24. Where I live, houses cost an obscene amount. I have been looking into buying a house, but the 20% down payment means that I will have a lot of money sitting around being dead capital while the down payment accumulates. I’m not sure that this is a good idea, when I could be building up my passive income streams instead.

    I’m currently looking into some out of the box approaches like buying a 2, 3, or 4 plex, living in one unit and renting the others out. Sadly, these don’t seem to be very prevalent here.

    The moral is that sometimes the best house buying strategy is to remain a renter. Especially if the money spent on the house can be directed towards other financial goals (early financial independence in my case).
    My Financial Independence Journey recently posted..Man Up and Admit Your Money Mistakes In Order to Learn and ImproveMy Profile

  25. I’ve checked out #2. Unfortunately in my area there isn’t a whole lot in the areas we’d be interested in. Don’t want to be in city schools, but not prepared to go rural. :p We’ll be saving up for a while more, yet. Would like to have more than the 20%.
    femmefrugality recently posted..Why That Scrimmage Was a Great IdeaMy Profile

  26. Jason is everywhere these days.
    I completely agree with savign as much as you can, and even when you buy the house, increase your payments to pay off your house faster.
    Marissa @ Thirtysixmonths recently posted..How to Ask for a DiscountMy Profile

  27. The other thing I’d add is to consider alternate locations. If you currently live in an expensive area, you could save hundreds of thousands of dollars by looking elsewhere to buy a house. I know for me, my fiance and I will never be able to afford a house in the area we currently live (decent homes in good neighborhoods start around $500k), but if we move somewhere where houses are half the price, we can do it.
    Gen Y Finance Journey recently posted..Reflections on AgingMy Profile

  28. Everything is very open with a precise clarification of the challenges.
    It was definitely informative. Your website is extremely
    helpful. Thanks for sharing!
    Quinn recently posted..QuinnMy Profile

  29. Good tips, pretty much on par with what I’ve looked into myself and come up with. I wish I could get into a home now, but I am glad I have enough common sense to follow some of these tips and save up instead of jumping into something though! The only downside about some government programs, is that since I can qualify for programs that can get me about 3.5% down payments, it’s awfully tempting to do that instead of getting a bigger down payment as I should. For now, I’m paying off the car (to decrease debt and monthly expenses) for now, but then saving for a house!
    Kayla recently posted..laurentbelkacem:

    Rethinking the debt.My Profile

  30. If you are taxed on the time you request the money and once you file,
    how much would be the taxes of each? Posted by :
    chris
    small cash recently posted..small cashMy Profile

Trackbacks

  1. Personal Finance Week in Review #48 | WorkSaveLive says:

    [...] to Know When Buying a Car, the second one was featured at my friends Club Thrifty where I discussed 6 Tips for Making Home Ownership Attainable, and finally I wrote about Three Financial Considerations for the Stay at Home Mom over at Rather [...]

  2. [...] 6 Tips for Making Home Ownership Attainable at Club Thrifty [...]

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