Saving For That First Home

One of the factors that have a very positive influence mortgage pre-approval is the amount of savings the prospective buyer has in reserve. Most lenders realize that owning a home means the homeowner must have some money for unexpected emergencies. But saving money is not easy. It’s hard. Let’s examine some methods to help a prospective homebuyer gather a nest egg for that initial home purchase.

100 Percent Financing Is Not The Issue – Yes, there are a number of mortgage options that allow a buyer to purchase a home with no money down. These include using a Veterans Administration or a Rural Development mortgage. Some Federal Housing Administration loans require only a 3.5 percent down payment. The Mississippi Home Corporation has a Down Payment Assistance program to dwindle down the 3.5 percent to half a percent.

That is not the issue. The issue is having the financial resources available to meet unexpected expenses associated with ownership. What happens if the washing machine hose bursts while the occupant is away on a weekend trip? Who pays the cleanup costs? What about if the air conditioning compressor goes out on the 4^th of July? How does the owner cool his home? He must plan ahead. That is why having a small savings account is a must before a lender pre-approves a mortgage.

Review The Checkbook – Before starting any savings plan get a good understanding on the present. Do that with a thorough review of the check book. Know and understand when and where money comes into the household and when and where it leaves.

Control Expenses – Can a family reduce driving expenses by 10 percent? Is it possible to eliminate one restaurant visit a week in favor of eating at home? It could be as simple as taking a shorter shower to reduce water and heating expenses. Find ways to eliminate certain expenses and put the reduced expenses in a savings account.

Compare the cost of preparing a bag lunch versus eating lunch at a fast food restaurant. Would it be more cost effective to buy a larger quantity of a non-perishable item (like bathroom paper) once a month versus buying the same product in a smaller quantity every week? What is wrong with wearing a non-branded pair of jeans or tennis shoes? Here is a great way to save $5-$10 a week. Instead of stopping at the convenience store for that morning cup of coffee on the way to work, buy a travel coffee mug. Make the coffee at home.

Increase Income – Reducing expenses is a great start to saving. Take it a step further. Find another source of income and save it. There are some ways.

Take a second job but deposit those paychecks in a savings account. That is one of the fastest ways to save money. If a lender sees income being deposited regularly into savings, that is a great sign of fiscal responsibility and maturity. The potential borrower shows he is thinking ahead for a rainy day. Most lenders desire a borrower to have about six months of income disposable in the event of an unforeseen emergency.

Use a hobby or special skill to generate income. These include yard work, auto repair, carpentry, computer savvy, babysitting, cooking, bookkeeping, house cleaning or a comparable skill that someone needs and is willing to pay.

Change Lifestyle – Instead of going to a movie, rent one or just watch the TV. Think about day trips rather than staying in a hotel. If the trip must be an overnight one, consider finding lodging at a place with fewer amenities. Consider watching a ball game on television rather than personally attending it. Would walking or jogging in a park be more cost effective visiting a health club for the same activity?

Reward Yourself – Splurge within reason when reaching certain intermediate goals. As an example, if a personal goal is to save $50 a week, and that week the actual savings was $75 – reward yourself. Maybe that is the night to enjoy a restaurant meal or a theater movie. Saving money is tough work. Make it fun.

Monitor Progress – Don’t save money aimlessly. Set a target. Review the progress regularly. Make necessary adjustments. Remember that establishing a savings account is not the real goal. Home ownership is the real goal. Keep that in mind.

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Andy Kalinowski is a REALTOR® and an Accredited Buyer’s Representative® with CENTURY 21 Doris Hardy and Associates, LLC in Columbus, Mississippi. He is also a member of the National Association of Realtors. Contact him by cell (or text) phone – 662.549.3421 or by e-mail – andyk@dorishardy.com.  He is also available for web video chat.