Tips from Mandy Thomas
First, make sure you know how much extra you can put down on it a year and what the rules are around that. You don’t want to put extra down and find out that you now have to pay a penalty.
BRAINSTORM WHAT THE NEXT 2-10 YEARS COULD LOOK LIKE FOR YOUI know this isn’t the “sexiest” thing to do, but it is so important to do this to make sure you are not just basing your decision on where you are now, but also taking into account the life changes that will more than likely be coming up in the pipeline or what will be coming up.
Think of Life Changes Such As:
REALISTICALLY FIGURE OUT WHAT YOU CAN AFFORDTake your monthly take-home pay (after you’ve paid taxes) and figure out what is 33% of your income. As a financial coach, I see a lot of people who are living in homes that they truly can’t afford and they are now feeling the stress of having their fixed expenses so high and not a lot of “breathing” room to get ahead. The reason I say to figure out what 33% of your monthly take-home pay is, is because that is the highest that you would want your TOTAL monthly housing expenses to be. If it goes above the 33% mark, you will really notice that you are having a hard time with other bills, because your housing costs are such a large percentage of your income.
If you can keep it towards the 25-30% mark that is better, obviously the lower, the better.
When you are figuring this number out, I am not just referring to your monthly mortgage amount, you will also want to include within this is:
One of my biggest concerns I see when people are wanting to purchase a home is not having a truly clear picture of your finances, before looking for a home. When you are working with a realtor, a builder or other home professionals, they are only able to help you out as much as you can clearly articulate your financial situation to them. If you aren’t entirely clear on your financial situation, don’t expect those who are trying to help you to be either!
They don’t see all of the things happening behind the scenes, they don’t know exactly what your expenses are, so you need to know this so they can properly help you find a home that is right for you, not just now, but in the future. But they can’t guess, so you need to do your own due diligence ahead of time, so they are able to help guide you into what is truly best for you.
FIGURE OUT ROUGHLY WHAT YOU NEED FOR A DOWN PAYMENTIf you are considering looking at a home that is around $150,000 and you want to put down 15%, your goal will be to save $22,500 for a down payment.
Sit down and actually play around with the numbers to see what you will potentially be looking at as needing to have saved for a down payment.
OPEN UP A SEPARATE SAVINGS ACCOUNT TO PUT YOUR SAVINGS INTO FOR YOUR HOME DOWN PAYMENTMost people have one savings account but they are trying to save for multiple things in that one savings account, which makes it really difficult to have transparency to know how much you have saved towards all of your goals. This is just one reason why I highly suggest opening up a separate savings account that is just for saving for a house, some banks even allow you to “name” the account, which I also suggest doing!
MAKE MASTERING YOUR CASH FLOW AN UTMOST PRIORITYThis is definitely one of the most important things to do before committing to putting extra towards your mortgage. When you have clarity with your money and you become really competent at mastering your cash flow (not just “budgeting”), you truly know how much extra you can put towards your mortgage without causing you to come up short in other areas. It will also help you to see your months that you may have higher income available to put towards your mortgage, so you can allocate it for it before it comes and all of a sudden is put towards something else. Feeling confident with cashflow management and taking control of your finances months in advance, is one of the skills that I help my financial coaching clients to achieve.
By making mastering cash flow a priority, one of my clients “D” (to protect her identity), we were able to make sure that all of their goals were being achieved including paying into hers and her husbands retirement funds AND we were able to make it so they could put $50,000 additionally towards paying off their mortgage each year for the remaining term.
FIGURE OUT WHEN YOU WOULD POTENTIALLY LIKE TO PURCHASEOnce you have figured out approximately what you need to save as a down payment, then figure out when you would potentially like to purchase.
If it is 2 years from now, that is 24 months that you have to save up. Which you can then figure out how much a monthly, you need to start saving right away.
If you want to save $22,500 for a down payment in order to purchase 2 years from now, you would need to be saving approximately $938 each month.
If you wanted to save $20,000 for a down payment to purchase in 3 years from now, you would need to be saving $556 each month.
Knowing how much you need to save each month, can really make it easier to figure out between you and your partner (if you are purchasing a home together), what the total needs to be that you will contribute and then you can discuss how you will break down what each person is contributing.
PAY OFF CREDIT CARD & CONSUMER DEBT FIRSTFocus on paying off any credit card debt or consumer debt that you may have, so you have this high-interest rate debt paid off. Then you can “roll over” the money that you were paying towards these debts, to use as extra money to put into your house down payment fund.