Saving for Downpayments

[kashi]

How long did it take you to save up for a downpayment on a house? or a car?

Obviously everyone's salary scales are going to be different, not to mention the cost of living, but I'm thinking that even saving as much as I can in a year, that will amount to about $2000/yr. It would be about twice that if I stopped contributing to my retirement account (which I don't want to do). How on earth would I ever come up with enough to put down 20% on a home?

My car is getting up there, both in age and mileage, and the model isn't known for having a long life span (oh how I wish I had a Honda right about now). I'm pretty sure that will be my next big purchase.

I've just been thinking about both big ticket items lately, and I have no idea how I will afford a car, much less a home, someday!

[34saving]

Unless you're in a much different part of MN than I am (I'm in the southern metro) you probably won't be able to save for a 20% house down payment. Luckily most mortgage companies don't require that. You can get loans at good rates for 5% down or even less sometimes. You have to pay PMI and that really stinks, but at least you can avoid renting and hopefully get some appreciation. If a single family home is still out of your price range there are lots of townhouses and condos available. In this area (at least) those are still appreciating pretty well and lots of them are very nice!

As for the more immediate car concern. Try to avoid taking a loan if you possibly can. (You have to pay for more insurance and it's debt for a depreciating asset, which IMO, is never a happy position to be in (though I realize it's sometimes necessary.)) Saving $2000 a year for 2 or 3 years can get you into a pretty nice Camry/Accord as long as its ten years old. If you're okay with a Corolla you could get one a bit newer or a bit cheaper. Of course you will have more maintenance than with a newer car, but in my experience the "long runners" (Toyota/Honda/others?) are cheap transportation if you buy them when they're older and use them until you find a deal on a newer one you just can't resist. (I drove my last car for 11 years and it was only $3500 to begin with . . . and I sold it for $500.)

Finally, save save save

[jacquelynrose]

What I would do is find a way to make extra money and use that towards your downpayment.
Jacquelyn

[kashi]

34saving, yeah, that's what I was thinking. The price of homes here is nuts. I couldn't possibly afford one on my salary alone, unless I moved out into the boondocks and commuted for hours every day! I wish I could afford it, though...a condo/townhome is a good idea, but I am tired of listening to neighbors. The alternative is to move somewhere more affordable, but then what do I do for work? no idea. and of course, you're right about the car...I definitely want to buy used, and I would loooove to not need a loan.

If I could get a successful ebay store going, maybe that would help with $$$...but we'll see.

[Russell]

Originally Posted by kashi

unless I moved out into the boondocks and commuted for hours every day!

My wife and I did just that for 2 yrs...it was no fun but as they say no pain no gain We sold the house for a decent profit last month and we are now renting. Trust me paying rent hurts more than the commute ever did but we are hoping this is temporary until the housing market bubble bursts and we can finally afford something. Where we are renting the median house prices are $600k+ and these are small houses 3500sq-ft lots and 1400sq-ft Although its a nice area but even the not so nice areas are around $400k and very old houses (1960s).

We bought the house with way less than 20% down but for some reason (i can't remember now) we didn't have to pay PMI...state laws differ too. The first house is never the most desireable for most people but once you get your foot in the door generally you can move up.

As for the car, what do you drive and what repairs have you had to do on it so far ? I'm a car nut and maybe I can offer some advice here. Is it really on its last legs or do you want something different (which I totally understand ) ?

[gakline]

I had some save up for a downpayment, but not nearly the 20%. So my parents chipped in and loaned me the rest. We set up an amortization schedule and I'm paying them back every month. If you have a relative that would be willing to do that, offer them some small interest rate - just above a savings account or over inflation and they'd probably agree.

Doing this with a private loan is the same was as having 2 loans through the bank (this is done to avoid the PMI) You might just stop by your bank and talk with them and see if it's feasible. They might have some other options.

[Tree0164]

We only put down 5% when we bought 9 years ago. I honestly wish we put down more. We did have to pay PMI.

Maybe just contribute to the company match to your 401k.

Good luck!

[kashi]

I'll really have to research buying a home a lot more before I jump right in.

I work for a nonprofit agency, so I don't have a 401k, but the nonprofit equivelent. The way our retirement account is set up, I can't contribute anything to it, so that's why I opened a Roth.

I wish I had a family member who had the money to lend...but it's all me! that's ok, I prefer it that way anyway.

Russell, I have a Fix Or Repair Daily, and it's had a ton done to it. I just passed the 100,000 mile marker, and my car make isn't really known for its longevity. That's why I'm a little nervous!

[Russell]

Kashi, you are right, home buying is a big decision and you should look at it from all angles and do your research. However, having done it once I don't think its all that difficult/complex as I used to think it was. I guess we were lucky to have a good agent whom we used to buy and sell both.

I asked the wifey why we didn't have to pay the PMI and she reminded me that we did a 80-20. Which is 20% HELOC (home equity line of credit or second mortgage) and 80% first mortgage. Our interest rate was a bit higher on the 20% but in a year we were able to refinance and roll everything into one for a low interest rate.

As for the cars, the older volvos could be a good low cost alternative to the usual Honda or Toyota models. I have a 88 volvo 240 wagon, its the most practical car I've ever owned. Lots of cargo room, safe and comfortable and very reliable if maintained properly. Ours has 235k miles on it and still runs very well. The only problem is that the A/C is not powerful enough for the size of the car but a sedan will probably be fine. Nice, well maintained ones can be had for around $1500 around here, they do rust if not protected. BTW, the 88 is considered to be the most reliable of the volvo 240s. They are also quite easy to work on and they have a great following and support on the internet. Take a look at www.brickboard.com if you are interested.

Another alternative is the Mazda Proteges (94-96), they use the same engines as the Miatas and they are bullet proof. The same engines are also used in certain year Ford Escorts so that's another option...I can't remember the years off the top of my head.

For about $3500 you can even find the 94-96 Accords around here. Depends on what you want and how much you want to spend. Feel free to ask if you have any questions for me. Also, take a look at Craigslist.org in your area...

Goodluck.

[34saving]

My family has also had very good luck with older Volvos, but you can't protect them enough to keep them from rusting in MN winters! (Okay maybe if you own a car wash or something . . . )

On the housing front . . . have you ever considered sharing a house? Our first house was a split level so we rented out the bottom 1/2 (2 bedrooms, a bathroom, and a family room) to friends of ours who were newly married and low on cash. We had to share the kitchen and laundry (though they did have a mini-fridge and a microwave downstairs), but the way our schedules worked out we barely even saw each other. We only did it for a year or so, but it did help w/ the finances. . . just one more thought . . .

[kashi]

wow, thanks Russell!! great info!! I will definitely keep that in mind!! funny, I took a "car personality" quiz online a while ago, and it said my personality was a volvo. I thought it odd because I've never really liked them, but maybe I should reconsider!

34saving, yeah MN salt on the roads certainly does a number on cars. Renting out part of a house really is a good idea...I'm in the reverse situation right now!

[jmjj215]

I'm a huge fan of the chevy/geo pre-98 I believe prizm. We bought a '98 model in 2003 for $3800 (80k miles) and we haven't had a single problem w/ it. The prizm is a toyota corrolla - exactly identical engine and all insides - made at the same plant - has the same maintenance manual - but who the heck would want a geo? That's why they run so much cheaper than a toyota corrolla. Gets great gas mileage. It's a wonderful car. I know a guy that has a 94 and the only the he ever had to replace was the battery and alternator I believe.

On another note, I wouldn't borrow money from family in your situation. You're not in dire straits - and borrowing from family in my opinion means you are in dire straits.

[kashi]

I wouldn't borrow money from my relatives right now for a car or a home (not that there is anyone to borrow money from). The only reason I mentioned it was because gakline talked about how her parents gave her a loan.

[Tree0164]

Kashi,

I would also run some numbers on how much renting vs buying is going to cost you with taxes and pmi built on in. It may not be that much of a difference. You can always bring in a roommate. I look at rents around here for a 2 bedroom in Boston area and they are going for $1100 a month. My mortgage is $1300 including taxes. However I did buy before the housing boom.

One of my younger sister friends-single girl 26 just bought a condo and will be getting a roommate that will be paying probably about 1/2 the mortgage costs. I told her that she should have atleast 6 months of that "rent" in savings just in case a roommate flakes out. You never know that could happen.

Can you get a second job to help get down payment? Just for a few months.

Good luck! Such an exciting time.

[gakline]

Kashi, check this out. You can easily use it for a car or house.

Amortization Table

[kashi]

thanks gakline! it looks like greek to me right now, but I'll try to figure it out.

[tclah]

Have you thought about maybe purchasing a foreclosure? My parents did. The house need some yard work and some paint and new closet door, but it has more than tripled in value since they bought it. I myself am saving for a down payment and have done some looking around via internet and have found several really good homes listed on forclosure lists. Just a thought.

[gakline]

Originally Posted by kashi

thanks gakline! it looks like greek to me right now, but I'll try to figure it out.

Just fill in the blue numbers.

[34saving]

Not that you're to this point yet, but . . . if you're looking at saving money on the purchase price of a home in this area I'd look at estates before foreclosures. I've looked at quite a few foreclosures and have always been disappointed. I think the reason is: This area is rapidly appreciating so the house should be worth more than the mortgage(s)/Helocs on it. If it's not there's probably a reason. Sometimes it's a simple thing like Tclah mentioned, but I've found investors around here are savvy enough that those properties are gone practically before they hit the market. So, what's a common thing that would make someone walk away from a house and go through forclosure? Water and/or mold. Now, I think there's money to be made on that kind of property, but I doubt it's an adventure you'd want as a first time home owner. Estates have lots of the same characteristics as foreclosures (motivated sellers who are often forced to sell at weird times under weird circumstances, "as-is" disclosures, houses that are staged oddly and often very outdated), but at least there wasn't something so wrong with the property that it forced somebody to decide it was better to go through foreclosure than try to fix and sell. I hope this makes sense. I feel like I'm not writing very clearly . . . hope this helps, but at least it if doesn't you can ignore it

[Momof3grls]

Well a downpayment for a car I have never had to do I have always bought cars in cash but my first car I bought at 16 I had been saving for along time to buy 6 months at a real job & alot of babysitting when I was younger. Then at 19 I bought a trailer.

I used the money from my tax return for a down payment on my trailer. Then at 23 I bought a house & the down payment came from saving tax returns the whole time I had lived in my trailer. ought a midrange house & needed no PMI thank goodness!! Now at 28 I would love to have a bigger house so now I am contemplating how I can afford a larger home someday cause our growing family I think has long outgrown this house.