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One of the biggest obstacles for Inland Empire home buyers tends to be saving up for their down payment. That typically runs anywhere between 3.5% and 20% or more of the sale price. For a $500,000 home, that means you need between $17,500 and $100,000. (The more you put down, the lower your monthly payment.) But do not forget about your closing costs. Buyers pay around 2% of the sale price in closing costs, according to The Mortgage Reports. Before you freak out over how you’re going to come up with that much money, saving up for your down payment and closing costs may be a little easier than you think.
Down Payment Saving Tips
Open a Dedicated Savings Account
Preferably, this savings account should be at a completely different bank than your normal one. Additionally, make this a bank that includes limited access. This reduces your chances of tapping into it for frivolous expenses. Plus, automate your savings. Most employers offering direct deposit allow you to allocate your earnings into more than one account. This puts money away before you even see it and helps keep your spending in check.
Withdraw From Your IRA Account
Traditional and Roth IRAs are both great places to put your money while saving for a down payment. You may take out as much as $10,000 for your down payment when buying a home. With a traditional IRA, that money will be taxed. However, with a Roth IRA, you do not pay tax as long as you have had it for five years or more and are a first-time home buyer. Just remember that whatever you take out of your IRA affects how much you have for retirement. So, talk to your financial advisor about the pros and cons of using this method for your down payment before making a final decision.
Minimize Frivolous Spending
And speaking of keeping your spending in check, take a look at your spending habits. Now, that does not mean that you need to live like a hermit while saving up for your Inland Empire home. Instead, make a few subtle changes and you might see your savings add up quicker than you think. For example, if you find yourself spending $10 to $15 dollars a day for lunch, take leftovers from dinner the night before to work. That saves you anywhere from $200 to $300 a month. Minimize eating out. Notice that I did not say “eliminate”. Instead of eating out for lunch and dinner on the weekends, opt for a nice lunch (the cheaper of the two meals) on Saturday or brunch on Sunday and cook for yourself at home the other times. That can add up to $50 to $100 savings per meal for two people.
Get rid of cable and sign up for a streaming service instead. Instead of paying $200 to $250 a month, you pay as little as $10 instead. Eliminate your $40 gym membership and opt to walk or run for free. Finally, empty out your purse or pockets of any change at the end of the day. Save it up in a coin jar. When the jar gets full, take it to your bank to deposit into your savings account. Just remember to put the money you would have spent on any of these things into your savings account.
Look at Assistance Programs
Finally, check out available down payment assistance programs. Riverside County offers down payment assistance and homeowner education classes. Cal FHA and GFSA also offer assistance for first-time and low-income California home buyers.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
