Save Up For a Down Payment!

Save Up For a Down Payment!

If, after careful assessment of costs, budget, and future goals, you’ve decided to take the plunge and make the investment in home ownership, it’s time to start designating savings towards a down payment.  Even if you anticipate your official initiation into real estate a few years down the line, you’ll be better off saving aggressively now than financing more of the mortgage later on, or worse, raiding your retirement accounts to make up the difference between what funds you have available and what house you dream to afford.

Here are some simple and smart ways to start planning for a down payment today.

Put It In the Budget.  One of the best ways to realize major financial goals is by breaking them down into manageable pieces and working those intermediary targets into your monthly budget.  See where you have room to cut back in other expense categories and explore opportunities for supplemental income while you fund your future of home ownership. 

Create a line item in your budget that specifically targets this goal, especially as the prospect of buying a home draws nearer. Setting up automatic contributions from your paycheck to a savings or investment account can keep you from preemptively spending those contributions elsewhere.

Plan on 20 Percent.   Estimate your total home buying budget so that you can make a realistic assessment of your projected down payment.  Experts recommend putting down at least 20 percent.  Not only does the 20 percent rule mean lower monthly payments and less interest paid over the life of the loan, it also means having more equity in your home from the start and avoiding costly private mortgage insurance.

Check Your Credit.  In addition to saving up for a sizeable down payment, checking in and, if necessary, improving your credit, can save you a whole lot of interest when it comes time to take on the mortgage.  The better your credit, the better deal you can negotiate with your lenders, saving you thousands over the life of your loan.  Establish a history of in-full and on-time payments and check your credit reports for accuracy to make sure your score isn’t suffering because of an error or worse, fraud.

Shop Around.  Once you’ve zeroed in on a home that falls within your personal and financial criteria, it’s time to start shopping for a lender.  Don’t just walk into your bank and take the first deal you get.  Consider all the factors - the mortgage rate, closing costs, expected down payment, private mortgage insurance, and potential prepayment penalty.  The more you’re willing to put down up front, the better deal you should be able to negotiate with your lender.

Save for the Extras.  You don’t want your 20 percent down payment to totally clear out your savings.  Rule of thumb is that you will need approximately 5 percent of the property value for closing costs.  In addition, many owners like to make renovations onto the new property to make their house their home.  Save up to cover these additional costs of home ownership. 

Preparing for your future down payment with sufficient savings will leave you with ample options come home buying time.

Love and Money

Love and Money: Negotiating Finances as a Couple

According to a 2014 Consumer Services survey by Experian, half of married couples in the U.S. say that credit scores are important to them when choosing a mate.  Participants went so far as to rank “financial responsibility” as more important than “physical attractiveness” or “career ambition”, and “financial compatibility” higher than “sex and intimacy”.  In other words, the ability to communicate openly and honestly about your personal finances has become an essential component of an open and honest relationship.

Getting to that point of full financial disclosure however, can be wrought with uncomfortable moments and highly sensitive conversations. From the first date to the first shared living expenses to the first days as a married couple, negotiating finances together is a constant and important reality of shared financial responsibility. 

Here are eight must-have discussions for navigating the various stages of your relationship and the financial realities that go hand in hand with them…

Dating Discussions

1. What Is Your Financial Reality?  It’s much easier to say you’d prefer to keep things affordable from the first date than it is to come clean about your spending limitations three or four weeks in.  If your potential partner isn’t cool with budget-friendly coffee or dessert dates while getting to know one another, they probably aren’t a good financial fit anyway

2. What Are Your Financial Priorities?  How you choose to allocate your funds says a lot about what you hold most valuable.  Discussing financial priorities is a good way to see whether your life priorities align too. 

3. What Are Your Goals?  If you’re hoping for a future beyond the first few months, talking goals is a must.  Once again, goals are a reflection of priorities - financial and otherwise.  The sooner you find out if and where your priorities overlap, the more informed decisions you can make about your future - whether it’s together or apart.

Shared Living Discussions

If things are getting serious and you’re toying with the idea of moving in together, thereby sharing some of your financial responsibilities, be sure to have these discussions FIRST.

4. What Are Your Money Management Techniques?  If you’re going to be sharing financial responsibilities, you need to dig into the reality of your finances together.  Start talking beyond hopes and dreams, and discover how you each manage your money in the day to day to make those dreams happen - or what obstacles are getting in their way.  This is the time to address any concerns and reveal any financial skeletons - like bad credit or consumer debt - if you haven’t already.

5. What Are The Expectations?  Once both parties have laid all their financial cards on the table, an honest discussion about how to move forward and what kind of expectations of financial behavior is appropriate can commence.  What are the expectations around personal financial troubles- like debt or overspending?  What will expectations around shared expenses be- like rent, utilities, groceries, etc.? 

If these conversations reveal enough common ground, it’s probably a safe bet to move forward with your plans of co-habitation.  But that should not mark the end of your financial discussions.  Continuing the conversation, tracking progress, and coping with financial challenges together will help you decide whether you’re committed to a shared future later down the line.

Shared Life Discussions

Marriage is a legal union, and a financial one.  To commit to someone for life without having had a comprehensive discussion about money, let alone a few years of experience navigating financial challenges together, is a risky business.  In addition to all the conversations you’ve had up until this point, here are a few more to consider before tying the knot.

6. How Will Finances Be Combined?  Make a list of all accounts and all financial obligations and discuss how money will be combined or not combined and how any outstanding debt will be managed.  Every couple will have a different way of approaching their finances together.  What is most important is for the two people in the relationship to be on the same page.

7. What Is The Household Budget?  Creating a budget together is a great way to make sure both parties are getting on that same page - both in terms of present spending and future goals.  Talk about priorities together and build them into the budget in a way that suits everyone’s needs, now and in the future.

8. How Much Is “Too” Much to Spend Without Discussing First?  While marriage is a union and financial decisions of both parties affect the union, it doesn’t have to be the end of autonomy.  Discuss what budget there is for each partner to spend freely and what threshold amount is too much to spend without consulting one another first.

Hopefully, by having these important money discussions and coming to an agreement before getting too deep and financially intertwined, couples can grow stronger through their finances rather than be separated and estranged by them.