Ways to save for a home down payment and where to keep it.
Money Girl
300 MG How to Save a Down Payment to Buy a Home, Part 2
experience the performance of Lexus Racing, the thunderous V8 engine, the black and day-glow yellow Lexus RCF GT3, a blur of speed and adrenaline, the sheer force of acceleration, the physics-defying grip of the tires, the intensity of every corner, the precision of each maneuver, the sound of victory. Visit lexis.com/motor sports to keep the thrill going. Hey Fidelity! How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them, where you left them. That involves risk, including risk of loss. Fidelity brokerage services LLC member NYSESIPC. Hi, everyone. I'm Laura Adams, and you're listening to the MoneyGirl podcast. Saving enough for a down payment to buy a home is one of the biggest financial challenges that many of us face. In the first episode of this two-part series, I cover how much home you can afford and the amount you typically have to pay for a down payment. Plus, I give several resources for federal and local down payment assistance. So if you haven't downloaded part one, be sure to listen to episode number 299 first. In this episode, you'll learn smart ways to build your down payment fund and the best accounts to keep it safe until you're ready to become a homeowner. Money to buy a home typically comes from savings that you build up over time. For instance, let's say you estimate that you'll need a total of $20,000 for a down payment plus closing costs. You could create a goal to put aside $417 a month for four years, or $833 a month over two years to accumulate the full amount. A common question is whether you should invest down payment funds, or keep them safe in a low interest bank account. My advice is to never invest money that you might need in less than five years. That's because the value of your down payment fund could plummet the moment you find the home of your dreams and leave you unable to buy it and very disappointed. If you're not sure when you'll be able to buy a home or you know it will be within five years, keep your down payment in a high-yield FDIC insured bank account like a savings, money market, or certificate of deposit or CD. If your time horizon is longer than five years, consider investing your down payment in a low fee index mutual fund or exchange traded fund that offers broad market diversification. These are widely available at online brokerages, and I'll include links to a few of my favorites in the transcript for this show on the MoneyGirl page at quickanddirtytips.com. Just look for episode #300, called How to Save Money to Buy a Home, Part 2. You'll probably accumulate enough for a home down payment sooner than you think if you trim the fat out of your budget or find additional ways to earn more. My book MoneyGirl Smart Moves to Grow Rich gives you hundreds of ways to make the most of your money and shows you step-by-step how to create and stick to a realistic spending plan. Here are five money-saving tips to turbocharge your down payment savings. Saving Tip #1 - Downsize Your Housing Housing takes a big bite out of income. If you move into a less expensive home for a few years, you'll save money on rent that can be used to boost your down payment fund. Experience the performance of Lexus Racing, the thunderous V8 engine, the black and day glow yellow Lexus RCF GT3, a blur of speed and adrenaline, the sheer force of acceleration. The physics-defying grip of the tires, the intensity of every corner, the precision of each maneuver, the sound of victory. Visit license.com/motor sports to keep the thrill going. September is a great month for planning. 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Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is right for your family. Ixcel is an online learning program for kids covering math, language arts, science and social studies. Ixcel has interactive practice problems for topics from pre-K to 12th grade, and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. They're videos, lessons, sample problems, and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning. Get Ixcel now, and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixcel.com/moneygirl. Visit ixcel.com/moneygirl to get the most effective learning program out there at the best price. Saving tip number two, get a roommate. Find a roommate on sites like craigslist.com, roommates.com, or roomster.com to share housing and food expenses. Saving tip number three, make it automatic. A powerful tactic is to put your savings on autopilot. If you have direct deposit at work, have your employer send a portion of each paycheck to a dedicated savings account. If you don't have direct deposit or are self-employed, set up a recurring monthly transfer from your checking account to a savings account. If money never hits your checking account or is transferred out quickly, you won't be tempted to spend it. Saving tip number four, bundle services. While you're saving for a down payment, consider canceling services like a telephone landline or cable TV. If that's completely out of the question, find out if there's a less expensive plan or opportunity to bundle services and save. Saving tip number five, shop insurance. If it's been a while since you shopped and compared prices for insurance, this is an area where you could really be leaving money on the table. Use online sites like insurance quotes.com or auto insurance quotes.com to get free quotes from top insurers so you can cut the cost of your insurance. Besides building up your savings, a creative way to buy a home is called a lease option. A lease option is an agreement between a tenant and a homeowner that allows you to rent a property with the option to buy it. The owner may charge you a premium for the option, such as an upfront fee or rent that's a little higher than market value. Here's a quick and dirty tip. If you sign a lease option, negotiate for the property owner to apply some of your rent each month toward the eventual purchase price. That way you'll automatically have down payment funds if you exercise the option to buy the property. If you decide not to buy, any premium you pay is generally forfeited. The term of a typical lease option agreement is one to three years, but can be any period of time that you and the owner agree on. The purchase price of the home can be estimated at the beginning of the agreement or when the option expires. If a seller owns a property outright with no mortgage debt, he or she may be willing to offer owner financing. In this situation, you make loan payments to the owner of the property instead of to a bank or mortgage company. A huge benefit of owner financing is that you don't have to go through a rigorous and strict mortgage approval process with a financial institution. However, the interest rate, a seller charges may be higher than the going market rate, so be sure to weigh the pros and cons of a seller finance deal and seek the advice of a real estate attorney. Ask a real estate professional about which properties on the market have the potential for creative financing, landing a lease option, or getting seller financing can be the key to buying a home with very little money down. Another way to come up with down payment money to buy a home is to tap a retirement account, like an IRA or 401(k). In next week's episode, we'll cover the retirement account rules and whether rating them for a down payment is a good idea. I'm glad you're listening to Qing. That's all for now, courtesy of Money Girl, your guide to our richer life. Experience the performance of Lexus Racing, the thunderous V8 engine, the black and day glow yellow Lexus RCF GT3, a blur of speed and adrenaline, the sheer force of acceleration. 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