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How To Save For The Down Payment To Buy A New House
Forget all the marketing gimmicks on no money down properties. You almost always end up with a debt that you will have to pay for the rest of your life. Those complicated financial strategies are meant for hardcore investors anyway. Not for the everyday home owner whose only concern with real estate is a conducive comfortable home to raise a family and build beautiful memories.
So bearing in mind that you can often get 80% loan to value on a mortgage, and in some instances even up to 90%, your primary concern is the amount of cash you have to cough up for the down payment and closing costs. Some of the expenses you should add up onto the amount of money to save include taxes in the form of stamp duties, legal fees, agent commissions, and renovation costs. The price you will be quoted by contractors is no small issue. There is a price you have to pay to make your home look like the one in your dreams. And with the nature of how remodellers work, you can expect a hefty bill should you be looking at luxurious looking home designs.
How to save money for that down payment?
The first thing you have to do is adjust your mindset. Saving money for a new home is not a punishment dished out to you just because you have not done as well as you should in your career. To make it as painless as possible mentally, see living frugally as a short term event and it is just a stage in the journey towards the house that your wife will boast about with her friends. You know… the story that implies that she married right and frames you as a hero?
The benefits can have an even bigger psychological effect if you are a renter who has been living under the microscopic eyes of grumpy landlords for years. This is your first step to owning your own home. No longer will you have to live by the ridiculously restrictive house rules set by an authoritative old man. You will live the way you want to. And for a lot of people, it is one of those milestones that officially makes you an adult.
The next thing to do is to cut up your credit cards. After gambling, the next biggest reason people get into a never-ending spiral of debt is credit cards. It is not really a matter of owning enough cards to make up a deck to play poker with. It is the usage of it that is the problem. The emotional aspect of using credit cards to purchase stuff is very different compared to using cash. It is psychologically more painful to use cash. And that is exactly what you want to feel so that you think not twice, but thrice before splurging on things you don’t really need again.
Clear the outstanding balances and cancel your cards. It will boost your credit and be less taxing on your mortgage debt servicing ratio too. You can reapply for them again once you buy your new house. You are just making a short term lifestyle change for long term benefits. Remind yourself of that to drive your discipline and motivation.
The biggest money saving activity to undertake is to dramatically reduce your recurring expenses. If you are living in a big rental apartment, consider downsizing to a smaller one. If you are making huge insurance premiums each month, consider getting a higher excess to decrease your monthly payments. If your are on premium mobile data plans or cable subscriptions, think about the possibility of downgrading to just the basics. These things can look like minor expenses. But they can be quite breath taking when added up.
Playing around with your housing arrangements can play a huge role in this area. For example, if you already have a house, ponder about the possibility of renting out a room to a tenant. If you are renting a place with a house mate, consider taking in another house mate to spread out the costs. Or if there is an additional room, sublet that out to more tenants. Rentals are big ticket items. If you can find a way to exploit it instead of being a victim of it, you will be in the clear before you know it.
This can be the most painful item to compromise on for a lot of people. It is well documented that a huge number of people actually treat their cars better than their life partners. But don’t let that cloud the fact that unless you are in the rental car business, a car is always a liability. Car loan instalments, quarterly servicing, repairs and maintenance, annual auto insurance premiums, road taxes, parking fines, rising petrol costs, etc. And all these just for that little more convenience when travelling around town.
Consider the possibility of selling off your vehicle or replacing it with a less costly one. If you do drive, you will already know that cheaper cars also cost much less to keep it on the road in working condition. And these expenses can go up to the heavens if left unchecked. If you take away these expenses, you are already at least halfway there towards your down payment for the new home. And just like the credit cards you have dismembered, nobody can stop you from purchasing a new car after you bought your new home.
Think short term to alleviate the pain
There is no doubt that you will have your normal lifestyle compromised to save for that all important down payment. But if you remind yourself that the pain is only short term and you will eventually emerge stronger with a new modern designed home behind you as the backdrop, the mental pain can be numbed to a huge extent. Think about the laughter and happiness you will share with your family members, the barbecue nights you can have with the guys, the conducive environment you can go about work or watch television. Voluntarily being a little cash strapped is a small sacrifice any adult can handle for the unrivalled benefits you are working towards.