January 5th, 2016 8:49 AM by Jackie A. Graves
tackling mortgage interest rates, home maintenance costs and utilities, every
home buyer must first gather the funds for a mortgage loan down payment. The
typical mortgage lifespan lasts 15 to 30 years, but for most house hunters
looking to secure a home loan, those terms sound more like the amount of time
it takes to save for a down payment. And the research is there to prove it.
“It takes an average of
12.5 years to save up a 20 percent down payment — the usual requirement by
banks — with the current personal savings rate of 5.6 percent,” wrote columnist
Quentin Fottrell of MarketWatch, citing statistics by real estate firm RealtyTrac.
According to Fottrell, it might take even longer to save up for that elusive 20
percent down, since the new findings don’t consider future rises in home
Saving up enough money to
put down on a house doesn’t have to take forever, though. We spoke to two
homeowners who subverted these financial odds and produced their own mortgage
down payments in less than a year.
Chris Crook saved up for
his first-time home purchase following four frugal strategies.
challenges of saving for a mortgage while renting, Crook cut down on his
day-to-day expenses, like subscribing to Netflix instead of paying a monthly
cable bill. He said he split the rent with a roommate to further funnel money
into his mortgage savings. Crook also used the money he saved while in college
to buy a used car instead of a new vehicle. Choosing a fuel-efficient hybrid
model also saved him money on gas. The money he would have spent on a new car
payment went towards his mortgage down payment instead.
“My expenses were
incredibly low,” he said. “Anything I made, I put directly in the bank.”
Being a salesman also gave
Crook the ability to save money for the down payment. “With my job, one nice
thing about it was traveling cut my expenses,” he said. His gas, meals and
lodging were reimbursed. Being away from home for extended periods of time also
meant his utility bills were usually cheaper.
Keeping up this routine
for nine months, Crook managed to save $30,000, which he used as a 10 percent
mortgage down payment on a $300,000 condominium with a 5/1 adjustable-rate
mortgage. The financial milestone led him to start his own financial
independence website, InvestingIsland.com. Crook is using the same savings
methods to invest in three rental properties.
Louis Altman’s mortgage
down payment strategy is a classic example of hard work paying off. In just
five months, Altman generated enough overtime pay for he and his wife to afford
$30,000 down on a $48,000 renovation property.
At the time, Altman worked as a phone representative for a mutual fund. During
the tax season, “there were some weeks when my income was almost double what it
normally would be,” he said. Altman ended up earning $10,000 in extra pay,
which “was a little more than 20 percent of the $48,000 needed to buy a
foreclosure. We gutted it to the studs, rebuilt it and sold it five years later
for triple what we paid.” He used those earnings to purchase future homes with
80/20 mortgage loans requiring no mortgage down payments.
Altman performed most of
his home’s renovations himself, saving thousands of dollars in hiring someone
else to do them. Reaching the end goal wasn’t without its financial sacrifices,
though. “If you’re going to make the commitment to do that, your life will be
kind of unpleasant for a while,” said Altman. “We cut our expenses, we didn’t
eat out at all — we didn’t do anything. The bare basics were: food, car
payments, stuff to live. Every penny went into that account.”
Altman’s advice to people
looking to save money for a mortgage down payment is to stick with their plans.
“It can get monotonous and frustrating and boring,” he said, “but when you know
there’s a path at the end, you just put your head down, and your shoulders up,
and you just go.”
Saving for a home
shouldn’t exclude knowing what you can afford. In the fourth quarter of 2014,
the median single-family home price in the U.S. was $208,700, according to the
National Association of Realtors. A sharp increase of 6 percent from the year
prior, a 20 percent mortgage down payment on a home of that value would mean
saving nearly $42,000, a price tag unattainable for most first-time home
To help your savings
along, think about some of these financial tips:
By GOBankingRates.com –
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