Author Topic: How did/ do you save for a down payment?  (Read 3137 times)

Nikii

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How did/ do you save for a down payment?
« on: March 05, 2018, 01:43:02 PM »
I understand this question is very generic and depends on various aspects but I am just looking for ideas here.

To give some background-
DH and I are close to being in our mid-30s and longing to buy a property of our own. We have 2 kids, 4 and 2 and are not expecting any help from our families. With the kids getting closer to school age, we are desperate to find a house in a good school district in NJ and just canít seem to get anywhere close to saving the 20% down payment. With the high rentals and childcare costs here, we are able to add very little to the downpayment savings every month, but at this rate I feel it will be another 5-6 years before we can think of buying a house.

Capt j-rod

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Re: How did/ do you save for a down payment?
« Reply #1 on: March 05, 2018, 01:47:58 PM »
Discipline and hard work is how I did it. I worked side jobs, weekends, and shook the change out of the couch. I got a huge boost from the stock market after 2008 as I invested everything I had into solid companies. Finally I sold off all my toys and un needed items. It was very hard to do. There are loan products for first time buyers, but the terms are pretty expensive. Wish I had a better answer or cooler story to tell you.

RWD

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Re: How did/ do you save for a down payment?
« Reply #2 on: March 05, 2018, 01:53:36 PM »
For our first house we didn't. 3% down FHA loan. Interest rate was 6.5% plus PMI. Oh yeah, this was in 2008 so the house promptly lost half its value too, fun times...

For our second house we found ourselves with way more than was needed for a 20% down payment (roughly ~$50k). High[ish] income and low expenses over time. So we've never deliberately saved for a down payment.

Nikii

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Re: How did/ do you save for a down payment?
« Reply #3 on: March 05, 2018, 01:58:18 PM »
Thanks Capt j-rod, i understand that is the most common and honest response. i think i know the answer too, was just frustrated and hence the vent.

@RWD, that's great! glad things worked out for you that way. The real estate market here in NJ is very competitive and bidding is very common. I dont think that the real estate agents take you seriously unless you are ready to put 20% down.

Sibley

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Re: How did/ do you save for a down payment?
« Reply #4 on: March 05, 2018, 02:05:42 PM »
Well, part of it is knowing when you're better off renting. Run the NYT Rent vs. Buy calculator.

I saved all my extra money every month, and also cashed out a whole life policy my parents bought when I was a baby. I also chose to buy in a location not too far away that also happens to be 1/3 the price with 1/5 the property taxes. It makes a difference.

And I put 10% down. I had 20%, but wanted to hold some back for new house cash needs.

Capt j-rod

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Re: How did/ do you save for a down payment?
« Reply #5 on: March 05, 2018, 05:31:18 PM »
This is why I get very upset when a renter trashes a property. Most of my tenants have no way to ever get the down payment to buy a home, yet they have no respect for other's property. Keep saving and you'll be there in no time!

JJsfr

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Re: How did/ do you save for a down payment?
« Reply #6 on: March 05, 2018, 08:37:52 PM »
Very slowly. We have been saving for 5 years for a DP on a house in Denver. I want 20% mostly for the lower monthly mortgage.

Nikii

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Re: How did/ do you save for a down payment?
« Reply #7 on: March 06, 2018, 09:02:03 AM »
@Sibley, have run the calculator many times.. it gets me on the borderline every single time.. guess slow and steady is the way to go.. because of the crazy rental rates here, our rent gets increased by 100-150/ month every year. 

@JJsfr .. good luck!! hope you get there soon :)

MommyCake

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Re: How did/ do you save for a down payment?
« Reply #8 on: March 06, 2018, 09:18:25 AM »
Nikii, I'm also in NJ and struggled to buy a property.  What I did was buy a 2 family in a lower cost area (union county) than where I am from (bergen county).  I also did the FHA loan with 3% down.  The rental income from the 2nd unit covered a large amount of the mortgage, allowing me to save most of my income for another property.  Now I'm back in a single family in my preferred area.  If you can stand tenants, this is a good strategy for first time buyers. 

You can also look for a fixer upper and renovate over time.  For example, this weekend I went to an open house in Westwood and saw a nice single-family house (but old, needed updating) for 345k, which is cheap for the area.  5% down on that would be under 20k, and you'd be in a great school district.  Deals like that ARE around, you just have to search. 

If you are north jersey, I can refer you to the realtor who helped us find and buy our house.  he was very patient, showing us at least a dozen properties until we settled on one.  Also, getting a pre approval will help with being taken seriously.  Good luck!

Raenia

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Re: How did/ do you save for a down payment?
« Reply #9 on: March 06, 2018, 09:23:55 AM »
I'm in the same place right now, looking at the house prices in our area and despairing of getting to a 20% down payment without dipping into retirement savings.  I really don't want to cut down my 401k contributions, but the rent vs own calculators come out solidly on the 'own' side for us (for the amount we pay in rent now, for a small apartment, we could easily get a 3-4 bedroom house with a nice yard.  I could have a garden again!).  We really wanted to put 20% down, but we may have to cut back to 10% or else rent for another year or two while we save up the funds, even though renting is more expensive.  Progress just feels so slow, but I have to remind myself that retirement savings are more important.

Laserjet3051

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Re: How did/ do you save for a down payment?
« Reply #10 on: March 06, 2018, 09:35:50 AM »
Rent/Buy calculators put us solidly in the "continue renting" category for our area, so we are not, and have not been, saving for a down payment. The rent vs. buy calculus is not even close, so for the foreseeable future in this part of the world we will continue renting.

I'm a red panda

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Re: How did/ do you save for a down payment?
« Reply #11 on: March 06, 2018, 10:05:13 AM »
We don't categorize our savings so we just made money, didn't spend it - and then put down a 20% down payment.  The "don't spend it" is all the typical MMM and Frugalwoods tips- very old cars, never eat out, bike to work, no new clothes, little to no entertainment budget.

At that time we were just saving in a bank account using a CD ladder (separate from our retirement savings).

20% of a starter home in Iowa isn't nearly as much money as in NJ though. Basically the downpayment was the same as my pre-tax salary. So we did about 2-3 years of living on only one income and there was enough money. Come to think of it, the downpayment on our second home was also about the same as my pre-tax salary, my salary was just much higher by then.   We did the same thing with that one too (we didn't buy it using equity from the previous home, as we hadn't sold yet.)

clumlee

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Re: How did/ do you save for a down payment?
« Reply #12 on: March 06, 2018, 01:57:20 PM »
Dig deep. Save what you can. Breakfast? Eat a peanut butter sandwich. Lunch? Eat a peanut butter sandwich. Dinner? Eat a peanut butter sandwich. If you want to really get ritzy, get the 4-pack macaroni and cheese from Wal-Mart. I'm not kidding. This is pretty much how I did it. I saved what I could from working 3 jobs to help. I know it's a bummer answer, but that's kind of the reality.

mm1970

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Re: How did/ do you save for a down payment?
« Reply #13 on: March 06, 2018, 02:00:44 PM »
We bought our house before we had kids, which made it much easier.  No childcare costs.  Then again, we have a house in the single worst elementary school district in the area.  So, there's that.

I'd maybe focus on the school district you want to live in - maybe a "good enough" one, not the best one.  Rent until you can afford to buy.

Scortius

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Re: How did/ do you save for a down payment?
« Reply #14 on: March 06, 2018, 02:29:22 PM »
I actually dropped my 401k contributions to match-only territory while we saved. We were aiming for 20% plus another 10% for expenses and buffer, but happened to find a house we really liked right when we were teetering on that 20% edge. We explored conventional 85/15, 90/10, as well as 80/10/10 piggyback mortgage options. It turned out that there was essentially no benefit to going from 90/10 to 85/15, and our good credit scores resulted in very reasonable PMI payments, so we went with 90/10 and earmarked the extra cash for investments.

I used to be extremely set against PMI, but analysis on this site helped convince me that PMI can be a reasonable expense when calculated correctly. Boarder42 and others have put some good work into the analysis that is worth reading. In short, it may be worth it for you to take out a 90/10 mortgage depending on your credit score and quoted PMI costs.

https://forum.mrmoneymustache.com/ask-a-mustachian/getting-rid-of-pmi-what-'return'-would-i-get-for-paying-down-my-mortgage/msg1561643/#msg1561643

https://forum.mrmoneymustache.com/ask-a-mustachian/getting-rid-of-pmi-what-'return'-would-i-get-for-paying-down-my-mortgage/msg1561921/#msg1561921

Mr.GrowingMustache

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Re: How did/ do you save for a down payment?
« Reply #15 on: March 06, 2018, 02:33:31 PM »
A good school district in NJ will cost you a lot in property taxes and home prices! Perhaps an Ok school district would be better.

You can always supplement your children's education with good summer programs, tutor, or yourself. A lower then 8/10 rating doesn't translate to something out of "Dangerous Minds". It does however translate to a weaker curriculum (math especially). Also a good school is not a magically going to make your kids Ivy league candidates, you will play just as an important role in that. Good school districts are in more affluent neighborhoods hence the kids get more encouragement, support, private tutoring, not having a part time job, etc.

Getting into the Honor's programs, maintaining good grades, and supplementing her education will be my goal when my kid grows up in our mediocre school district.


Also, showing us a case study would be nice.

SimpleCycle

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Re: How did/ do you save for a down payment?
« Reply #16 on: March 06, 2018, 02:56:30 PM »
I would go for a good enough school district.

DW bought her first place with a 3% FHA loan in 2002 and sold in 2006.  That equity eventually became the down payment on our current place.  So basically, we got very very lucky.

BigRed

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Re: How did/ do you save for a down payment?
« Reply #17 on: March 06, 2018, 03:05:04 PM »
We're also in North Jersey and we've slowly saved up over 4-5 years to where we have enough for 20%, though many of the houses in our budget need a fair amount of work and the ones that don't end up with 5 or more offers and not in our range anymore.

For us, the rent-v-buy calculation is completely dominated by the expected house price growth and investment growth inputs.  Low Investment growth (since our 6 figure down payment is sitting in cash as we shop)/high house price appreciation and buying looks very good.  If we expect prices to stagnate and invest our stash, then renting looks good.  Since I don't have a crystal ball, the whole calculator seems not so helpful.


Blazin

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Re: How did/ do you save for a down payment?
« Reply #18 on: March 06, 2018, 03:29:28 PM »
Our experience has been, that once you are done trying to pay for daycare it is a lot easier to save more for the down payment. Maybe rent in the area you are thinking of buying once the kid's are school age. 

mm1970

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Re: How did/ do you save for a down payment?
« Reply #19 on: March 06, 2018, 05:59:48 PM »
A good school district in NJ will cost you a lot in property taxes and home prices! Perhaps an Ok school district would be better.

You can always supplement your children's education with good summer programs, tutor, or yourself. A lower then 8/10 rating doesn't translate to something out of "Dangerous Minds". It does however translate to a weaker curriculum (math especially). Also a good school is not a magically going to make your kids Ivy league candidates, you will play just as an important role in that. Good school districts are in more affluent neighborhoods hence the kids get more encouragement, support, private tutoring, not having a part time job, etc.

Getting into the Honor's programs, maintaining good grades, and supplementing her education will be my goal when my kid grows up in our mediocre school district.


Also, showing us a case study would be nice.

Our school (that we are districted to) was rated a 1/10 when our eldest started kindergarten 7 years ago.  It's now a 3.
The school we attend (open transfers) was rated a 5/10 when our eldest started kindergarten 7 years ago.  It was a 6 last year when we registered our 2nd child.  It is now a 2!!

What changed?  Nothing really, except they changed the type of tests they give at the state level AND the way they decided how to rank the schools.  Turns out "parity" is big right now.  So the fact that our middle class English Origin kids are doing awesome and our poor, homeless, or English learner kids are not strikes against us.  Plus, we have a large disabled population.

As far as elementary goes, look at the scores of your demographic.  For junior high and high school, I'd see what they offer, but in our area, the offerings are pretty similar.  I've found that "poorer" schools actually get a lot of help.

bugbaby

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Re: How did/ do you save for a down payment?
« Reply #20 on: March 06, 2018, 06:15:35 PM »
So relieved to hear not everyone on here is of the '$500k liquid investments by age 35 or you're a loser' school of thought.

 I'm saving for my 2nd home (first was 3% FHA  in 08 which I lost in the 2010 bust) by living barebones in a cheap rental for 3 years so I don't touch my regular savings.

Sent from my KIW-L24 using Tapatalk


Nikii

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Re: How did/ do you save for a down payment?
« Reply #21 on: March 07, 2018, 01:51:15 PM »
Thank you everyone for your views and inputs.. we are following many of the mustachian practices already and am aware that there are some areas where we can cut some fluff as well.

We have been thinking of moving outside of NJ as well due to the insane property prices and cost of living here. Hopefully, by this year end we will have made our decision.

Valvore

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Re: How did/ do you save for a down payment?
« Reply #22 on: March 08, 2018, 01:06:23 PM »
Make sure you use your windfalls wisely. With two kids, you get a $2,000 tax credit which may result in you getting money back. Put it directly into the house fund. There are also 2 months a year where you get 3 paychecks if you are paid bi-weekly. Boom, windfall. Any unexpected influx of $200 or more should go straight to the house fund. After a few years of tax refunds and 3rd month paychecks, along with our regular savings, you may get there sooner than you think.

I'd also look to see what you can sell that will be a nice chunk of change. Old girll? Sell for $100. Never used sitting chair? $75. Pretty much any furniture can give you a mini boost if you sell it.

Good luck!

Dicey

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Re: How did/ do you save for a down payment?
« Reply #23 on: March 08, 2018, 01:12:26 PM »
Simple. Spent less than I earned, put the money in the bank. Of course, CD's were paying some pretty attractive interest rates back then.

I'm pro-RE, but if I had to deal with NJ tax rates, I'd probably choose renting over owning.

shelbyautumn

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Re: How did/ do you save for a down payment?
« Reply #24 on: March 08, 2018, 02:14:29 PM »
My husband and I bought our first home in 2014 before finding MMM. We got a first time home buyer credit of 3% towards a down payment with a 4.25% FHA loan. In 2015, the market in Colorado Springs exploded, the value of our house went up significantly, we refinanced to a 3.75% 30-year mortgage, and got rid of our PMI. Our payments went from $1200 a month to $850.

We sold our home this past July, moved to Mississippi, and used the profit to put a down payment on our current home (also at 3.75%).

None of our strategy was smart - we were 23 and 25 and it was all luck. Sorry I don't have any real advice, but with mortgage rates rising, I wouldn't buy again without the full 20% down payment.

Imma

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Re: How did/ do you save for a down payment?
« Reply #25 on: March 08, 2018, 03:23:27 PM »
Dig deep. Save what you can. Breakfast? Eat a peanut butter sandwich. Lunch? Eat a peanut butter sandwich. Dinner? Eat a peanut butter sandwich. If you want to really get ritzy, get the 4-pack macaroni and cheese from Wal-Mart. I'm not kidding. This is pretty much how I did it. I saved what I could from working 3 jobs to help. I know it's a bummer answer, but that's kind of the reality.

This, pretty much. We were lucky to qualify for our country's version of FHA. We bought a fixer upper, put 3% down and paid 5% closing costs out of pocket. We bought a house that didn't have floors. We needed a LOT of money.

We worked all the overtime we could get, we bought the cheapest food we could find, we sold absolutely anything we weren't taking with us. Our neighbours received a food bank parcel every week and they shared it with us - they couldn't really cook, so otherwise it would have gone to waste. Someone else frequently gave us veggies the grocery store tossed out. We ate any weird food we could get. Luckily we only did this for a year - and believe it or not, we get nostalgic about it now. It was fun in a way, it didn't feel like suffering.

Bracken_Joy

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Re: How did/ do you save for a down payment?
« Reply #26 on: March 08, 2018, 03:38:06 PM »
I actually dropped my 401k contributions to match-only territory while we saved. We were aiming for 20% plus another 10% for expenses and buffer, but happened to find a house we really liked right when we were teetering on that 20% edge. We explored conventional 85/15, 90/10, as well as 80/10/10 piggyback mortgage options. It turned out that there was essentially no benefit to going from 90/10 to 85/15, and our good credit scores resulted in very reasonable PMI payments, so we went with 90/10 and earmarked the extra cash for investments.

I used to be extremely set against PMI, but analysis on this site helped convince me that PMI can be a reasonable expense when calculated correctly. Boarder42 and others have put some good work into the analysis that is worth reading. In short, it may be worth it for you to take out a 90/10 mortgage depending on your credit score and quoted PMI costs.

https://forum.mrmoneymustache.com/ask-a-mustachian/getting-rid-of-pmi-what-'return'-would-i-get-for-paying-down-my-mortgage/msg1561643/#msg1561643

https://forum.mrmoneymustache.com/ask-a-mustachian/getting-rid-of-pmi-what-'return'-would-i-get-for-paying-down-my-mortgage/msg1561921/#msg1561921

It's funny he quoted that thread, since that was going to be my answer!

Basically, I describe it in the first post of that thread, but we didn't save up the whole 20%. But we knew it was the right time to buy in the market we had our eyes on. And you know what? I was right. Conservative estimate is that in the last 2 years, our house is worth $30k more now than when we bought it less than 2 years ago. Likely $50-60k more though, since we've made some improvements.

But as for how we saved up the 11 or whatever % downpayment we did end up doing: we worked a lot. We lived in a shit hole, with my brother as my roommate (3 adults and 2 dogs in less than 1000 sq ft, in a 100 year old house). I joined Buy Nothing Project to avoid spending money on anything. I sold a TON of stuff on craigslist as I decluttered. I also sold stuff for my brother in exchange for keeping a cut. I started shopping at costco and grocery outlet, kept a pricebook, and bought a chest freezer. We set up a home gym in our garage port and cancelled our gym memberships. We bought a used car, gambling on the VW settlement situation, and made nearly $5k out of that deal. We kept the heat at 64F and didn't have any cooling. We cut our entertainment budget to zero, literally. Our entertainment was hiking nearby, growing our own food, and walking everywhere. And work. A lot of work.

During that year, we paid down over $20k in student loans and saved up a $30k downpayment. Some of that was money I had saved previously, but still, we made less than $100k that year IIRC?

Basically, we got our frugal muscled a work out, worked a ton on income, accepted a sub-optimal lifestyle then in exchange for a better lifestyle now, and took a gamble on knowing what the real estate market was going to do where we moved.

Finances_With_Purpose

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Re: How did/ do you save for a down payment?
« Reply #27 on: March 15, 2018, 10:40:34 PM »
Hard work.  This is really tough for folks in HCOL areas I'm sure.  There's just no easy workaround than saving.  And home ownership isn't for everyone.  But for those who want it, it may take some creative maneuvers to get the full down payment.  (Unless you're doing FHA or something else where you only need a tiny amount.)