LOS ANGELES—Early planning is always important when it comes to major tasks. Whether it’s about buying a car or simply fixing your deck, planning is always essential in order to avoid problems later. And it’s no different when it comes to buying your dream home or simply your first one. It’s all about planning.
Thinking ahead and using common sense will go a long way toward realizing your dream. Even as you wonder which neighborhood you’d like to live in or even which home would be best, it’s important to understand how much money you’ll need to make a down payment whether you would even qualify for a loan.
For these reasons, you must take care of your financial health and, better yet, start saving so you’ll have the needed down payment for that dream home. According to the Federal Housing Administration, all you need to qualify for their loan program is 3.5 percent of a home’s value. You would also need to make enough income to meet its debt-to-ratio requirement.
But more important is the FHA’s down payment requirement of 3.5 percent. It’s a gift. You’re not going to find a better deal than that anywhere. So why not take advantage of it? So if the price you’re looking at for a potential home is about $300,000, then you’ll need $10,500 for a down payment. It’s hard to believe, but that’s what makes the FHA program so beneficial for home buyers. It truly is a gift.
But to get there you must start saving now so that in whatever time it takes you’ll have more than enough saved to make the down payment. Look at it as if you’re getting your fiscal life in order or taking care of your financial health.
You must stop using your credit cards and start using cash unless it’s an emergency. You should look at your credit cards as a 30-day loan. If you can’t pay it by the end of the month, don’t use it. Unless it’s an emergency like if your car’s transmission needed repairs, then go ahead since you need to use your car to get to work, but otherwise stay away from your credit cards and you’ll be the better for it.
Another good idea is to eliminate costs such as your $9 morning coffee and muffin from Starbucks. If you really need that coffee at work then bring coffee from home and buy a bag of muffins from Costco and you’ll be saving more than you had thought possible. And the muffins from Costco are really good.
And stop buying lunch every afternoon and simply brown bag your lunch as often as you can and you’ll quickly realize just how much these lunches have been costing you every week.
But most importantly is find a way to put money aside every month for that down payment. Perhaps you need to have a “come to Jesus” meeting with yourself and make the changes necessary in your life to cut costs and save. It won’t be easy, but think about this: If you save $300 a month, by the end of the year you would have $3,600 in a year and if you kept it up, you would have $18,000 in five years.
And lastly, try to live within your means. Don’t use your credit cards, unless it’s an emergency, and don’t make big purchases that will cut into your efforts to save money. If you really must buy a refrigerator or car, get a used one. Go on Craigslist and you’ll see some good deals at a fraction of the cost of a new appliance. So stay on course. Make a good effort to save and cut your costs.
Remember, start your planning early and before you know you’ll be on your way toward becoming a homeowner.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at dr@advantage-realestate.com.
