Home Prices Are Through The Roof. Here Are 7 Steps to Help You Afford One
So, you’ve been thinking about buying a home? It appears the rest of Atlanta has as well. Unfortunately, the number of prospective buyers far outweigh sellers, resulting in an aggressive seller's market. The result? Home prices are through the roof (pun intended).
You may have already played around with an online mortgage calculator or have a general idea of how much house you can afford. Keep in mind, if you want an updated home or one in a desirable area of Atlanta - such as Midtown or the suburbs of Roswell/Alpharetta - you will have to pay the above list price. This can through a wrench in savings plans you set over the past couple of years (COVID-19 didn't help).
How are you going to save up for that downpayment as quickly as possible? I spoke to Lindsay Walston, an Atlanta-based real estate agent, about the strategies her clients have successfully used.
Step 1: Create a Plan
Based on your housing budget, figure out exactly how much you need to save. Unless you are able to enroll in a special financing program, a lender will want a minimum of 3% down on the sale price of the home for a conventional loan. Keep in mind that the higher the down payment, the lower your monthly payments will be and the less interest you will pay over the life of your loan. Most lenders will typically add mortgage insurance to any conventional or FHA loan that has lower than a 20% down payment, further increasing your monthly payment.
Decide what your target percentage is and work backward from there. How much more do you need to save? How aggressive can you be at putting money away towards that savings goal? Let’s say you want to put 20% down on a roughly $300,000 home, that means you need to save $60,000 for a downpayment. - Lindsay Walston
Step 2: Pay Down or Eliminate High-Interest Debt
If you have credit card debt, it’s time for it to go. Not only are you probably paying pretty high interest rates to carry that debt month to month, but paying down your debts will actually help you get a lower interest rate when you apply for a mortgage. - Lindsay Walston
Pay off the highest interest rate debts first or explore transferring the debt to a zero percent interest rate promotional offer. Many of these offers will allow for zero percent interest for a period of up to 12 months, making it a bit easier to pay down the debt faster. Be wary of annual or transfer fees associated with the account. Pay off the debt within the promotional period as well.
Step 3: Audit Your Finances
The next step is to figure out exactly where your money is going. If you don’t regularly track your spending, this can be a bit eye-opening. Is your money going where you want it to go? Are you spending in places you didn’t expect? Consider where you might be able to make spending cuts or small sacrifices to save more money even faster. The more ruthless you can be at identifying potential leaks in your finances, the faster you can get into that house. - Linsday Walston
Step 4: Tighten Up Your Spending
Now that you know exactly where that money is going, consider what you can temporarily or permanently do without. Here are some examples Lindsay's clients have cut prior to buying a home and the average amounts they save:
- Canceling Subscriptions - How many services or products do you have a subscription for? Of those, how many do you actually use? Eliminating most of all of these can potentially put hundreds of dollars back in your pocket each month – Average savings $50 per month
- Reduce Eating Out and Take-Out – Eating out is much more expensive than preparing a homemade meal. Pack a lunch or meal plan so that you don’t have to wonder what is for dinner. Save eating out only for special occasions. – Average Savings $250 per month
- Eliminate that Fancy Coffee Habit – Buy a good to-go mug and brew your own quality coffee at home for a fraction of the price and put that money to better use towards your new home. – Average Savings $100 per month
- Cut Your Grocery Bill – If you go to the grocery store multiple times per week or shop at a higher-priced grocer, you may be able to save some serious cash. Doing things like creating a meal plan for the week allows you to know exactly what to buy and minimizes food waste and impulse purchases. Multiple weekly trips to the store also increase the likelihood that you’ll spend more money so buying all your food at once can result in some big savings too. – Average Savings $160 per month
- Trim Your Clothing Budget – Shopping trips can be fun but they can also set you back on your savings goal. Consider minimizing clothing expenses while saving for your downpayment to speed up the process – Average Savings $100 per month
- Reduce Monthly Bills – Take a look at your regular monthly expenses like cable, internet, and cell phone. Try to negotiate a lower rate for those services, or downgrade if you don’t need as much as you have. Again, these monthly expenses add up and can result in huge savings over the course of a few months or year - Average Savings $60 per month
If you were able to make all of these changes that would save you $720 every month or $9,240 in a single year! - Lindsay Walston
Step 5: Get a Side Hustle
If you’re on a time crunch, a second job or side hustle can be a great way to boost your savings even faster. When considering what to do, think about options that compliment your current profession or those that appeal specifically to your interests. If you’re going to take up what free time you have with a second job, you want to at least enjoy it.
Step 6: Press Pause on Retirement Savings
This one is controversial. If you are dead-set on buying a home in the near future, your retirement contributions are an easy source of cash. Some will argue that if you need to take this money you shouldn't buy a home at your target price (or at all). You will be hard-pressed to find anyone who recommends taking money out of your account. Diverting is one thing, taking money out and paying penalties is a short-sided move that will hurt you financially in the long run.
Step 7: Stash Away Unexpected Money
Did you receive a bonus or stimulus check you weren’t expecting? Instead of spending it, stash it in your savings account right away. Similarly, if you get a raise at work, continue to live off of your previous income and put the extra away in savings. Paid off your credit card debt? Continue to put the money you were allocating to the payments away but divert it to your savings. This ‘found’ money can also make a big impact without lifestyle sacrifices of cutting elsewhere. - Lindsay Walston
With these 7 steps, you are well on your way to homeownership. As you get closer to your savings goal, it is a good idea to start talking to and interviewing real estate agents. You want to be sure you can find someone to represent you that will help you maximize the money you worked so hard to save. Want to know how to stretch that housing budget even further? Check out these strategies to maximize your budget when purchasing a home.
Some of you may be thinking this is money management 101, but it's easy to forget the basics. If you're ready to get into your Atlanta dream home, take care of the money first.