The Simple Dollar reports that the savings rate as of last year was 4.7%, which is 10.3% lower than it was 40 years ago! So, what’s the deal with this savings shortage? Why have Americans been saving less? Economics, my dear Watson.According to Census data, both inflation and average household income have increased and declined respectively over the past few years. The money that people have in their smaller incomes is valued at lower rates. Double whammy. In a country where high costs and small savings exists, where can homebuyer’s turn? To this blog!Find some really great, simple ways to help save money for a down payment below!
- First things first: open a savings account online at the same bank or credit union you currently have your checking account. The benefit of transferring funds back and forth from your accounts electronically and immediately can save you time and effort.
- Next: create a budget. To avoid sounding too obvious or elementary, budgets can be a truly effective tool in shedding light on your spending, help you cut costs, and can ultimately increase your savings. Oh, and it’s free.
Use a spreadsheet to determine your net income after taxes (hint: your monthly gross income – taxes – other costs from your pay stub = net income after taxes). Then subtract other monthly costs from your net income, such as rent, student loans, car payments, and credit card bills. After this, you can figure how much money is left each month and what you are spending that money on. Keep track by holding on to your receipts. From here, you can decide where you can cut your spending to decrease these costs. This may be difficult, especially with many household incomes and expenses being closely matched. However, if you schedule a weekly time to review your budget and take the time to think about your spending, you can efficiently increase your savings.
- If a birthday, bonus, or another occasional events rains some extra cash, don’t give in to the temptation of splurging…adding to savings account will help in the long run!While you’re at it: don’t forget to review your interest rates. Many people just accept and pay interest rates as they are. Although these rates differ for different things (i.e. credit cards, savings accounts, car loans, etc.), they can sometimes be changed. If you’ve been an “A+” credit card user, give the credit card company a call and tell them you want a lower rate. It never hurts to ask! Although auto loans, unlike mortgage lenders, are exempt from regulations. So if you are debating getting a cheaper car to save on expenses, just crunch the numbers first and make sure that it is financed with simple interest and includes a strong warranty. Also, if you can put more money down on a car, you may be able to qualify for a lower rate.
- And you can’t skip this step: check your credit score. This can be found on your credit report and formulated based on where you have credit accounts, the amount you have borrowed, your total debt, late or missed payments, and the amount remaining that you can borrow with your accounts. The ability to borrow and the rate at which you pay largely depends on your credit score. If you have a strong credit, lenders may originate a mortgage for you with little down and less savings.
But be wary. According to the FTC, approximately 20% of all credit reports have errors. This could greatly affect your credit status resulting a negative outcome of your mortgage application. So keep a sharp eye that your credit report shows up-to-date and accurate information!
- Gifted payments: Loan programs, including FHA loans, want borrowers to demonstrate financial responsibility and saving abilities by directly providing money for the down payment. This can be tricky if money is super tight. However, many programs allow outright grants that need to either not be repaid, or offer interest reductions and tax benefits. Also, relatives and friends are allowed to be recognized as donors with a signed letter and “gift” money with no expectation of repayment or interest. Thanks, mom and dad!
We hope that this helps you get started on saving. Do you still have questions about the homebuying process in today’s economy? Don’t hesitate to contact the Housing Buzz Team…we’re here to help!
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