Saving Up a Down Payment to Buy in the Colorado Real Estate MarketPosted on Sep 22, 2017
If you are like most millennials, you want to own your own home, but can’t seem to find enough pennies even after breaking open the “Hello Kitty” piggy banks and asking the “bank of mom and dad” for a loan. According to an article by cnbc.com, 80 percent of millennials in their late 20s and early 30s want to buy a home. But a report by Apartment List shows 68 percent of young people have less than $1,000 put aside for a down payment on a home, which doesn't go far in the Colorado real estate market. Forty-four percent have nothing saved. So, how do you turn around your personal finances to become a millennial home owner? When it comes to how to save up for your down payment on a house, the process begins with organization. Figure out where you stand now in terms of debt, income, savings and assets such as cars, art, valuables and collectibles. An article by time.com points out several millennial homeowners between 25 and 34 figured out ways to qualify for mortgages. Even if you should thousands of dollars of student loan debt, it’s possible to save up for a new home.
Choosing a FHA loan
One strategy for affording a new home in Colorado is to save up just enough for a FHA loan for first-time buyers. While people often put down 20 percent for a conventional loan, FHA requires just 3 percent of the loan. In order to pay the costs at closing, save up money by budgeting and keeping low day-to-day expenses. Millennials who made it work point out they buy at thrift stores instead of getting sucked into the temptation to buy shiny new things. Young people who own homes point out they didn’t go out every weekend and made coffee at home to save up for a down payment.
Paying off major debts
Another trick is to improve your credit by buying a car, but pay off the loan by the time you want to own a home. Paying off a car loan improves your credit score. Eliminating a monthly debt improves your debt-to-income ratio by lowering the debt side of the equation.
Getting a second job
Millennial home owners point out how much pride they feel as a home owner. Another way to save up is to boost income with a second job. Some millennials live with roommates or stay at home while they save up money for a home, which makes the feeling of owning a home even more liberating.
Asking mom and dad for help
Most millennials have baby boomer parents who love helping their adult children to a point. Instead of asking mom and dad for a loan, consider asking them for help with savings. Ask your parents to put aside the “rent” you pay when living at home so you aren’t tempted to spend it. Agree that your parents will give you back rent money to go toward a down payment on a home after they pay bills. If you don’t live at home, you can think of the IRS as your parents. Open a Roth IRA as a way to save up or a new home. The IRS penalizes you if you take out money gained, but you can withdrawal your contributions. Also, if you have had a Roth IRA for five years, feel free to withdrawal up to $10,000 for a home purchase as a first-time home buyer. The money you take out has to go for the down payment and/or closing costs.
At Team Lassen, we help first-time buyers looking to own in the Castle Rock, Westminster and nearby areas. For more tips on saving up to buy, contact us.