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Tips on Saving Enough to Buy a Home!

posted by: mmckay in For Buyers

Saving up a down payment to buy your first house can seem a pretty daunting task. If you’ve never had more than a few thousand dollars in the bank at any given time, then setting aside five figures or more may seem impossible.

However, getting a down payment together is not as difficult as you may think — if you go about it the right way.

Figure out how much house you can afford

The first step in saving up your down payment is to pin down the amount you can responsibly spend on a house. Lenders will typically limit your mortgage amount so that your monthly housing payments (including property taxes and insurance) will not exceed 28% of your pre-tax monthly income.

But if your income is a bit iffy — for example, if your pay fluctuates seasonally or you work in an industry with high turnover — shoot for a lower percentage, perhaps 20% or so. After all, home ownership usually comes with additional expenses beyond that monthly housing payment: repairs, additional utility bills, homeowner’s association fees, and so on.

homebuying calculator can help you figure out just how much home you can afford — but remember that no calculator can account for every aspect of your financial situation.

Set a savings plan

Once you know how much you need to save, the next step is to figure out how much you can set aside each month. That will also help you determine how long it will be before you’ll have the full down payment and can start house-shopping.

For example, if you plan to save $45,000 for a down payment, setting a time frame of five years to save $45,000 means you’ll need to save about $9,000 per year, or $750 per month, to make it happen.

Squeezing an extra $750 per month from your monthly budget will likely mean some serious cutting of expenses and/or finding new sources of income, such as a side hustle.

You can play around with a savings calculator to see how different time frames will affect your monthly savings requirements.

Speed up the process

One way to make the saving process go faster is to get better returns on the money you’re saving by investing part of it in stocks. It’s a riskier course of action than sticking the money in a savings account, but if you have several years before you buy a home, then it could greatly accelerate your savings plan. It would also mean you don’t have to save quite as much to reach your goal, because your money would be earning more money for you.

Your best bet is likely to choose a stock index ETF or two, which will instantly diversify your holdings, thereby reducing your risk of losses. Then hang on to the investment and let it grow for as long as possible, bearing in mind that you may have to ride out some ups and downs in the market.

Also, don’t put all of your down payment money into stocks; limit yourself to about 25% of the whole. That way, if the market heads in the wrong direction just as you’re looking to buy a home, most of your savings will be protected. The rest of the money can go into a savings account — but don’t limit yourself to your local bank’s offerings, because many internet banks pay much higher interest rates on their money market accounts than you could get from a standard savings account at your neighborhood branch.

Borrowing from your 401(k)

If you have a well-funded 401(k) account, you can borrow up to half the money (to a maximum of $50,000) and use that money as part or all of your down payment. You will have to pay the money back within five years, including interest, but at least the interest payments will go to you and not to some other creditor (the interest is paid into your 401(k)).

However, there are some potential drawbacks to tapping your retirement accounts for non-retirement purposes. If you don’t get the money paid back, not only will your retirement savings suffer a crippling hit, but you will have to pay both income taxes and penalties on the entire amount outstanding.

Plus, if you change jobs during the repayment period, you’ll be required to pay back the remaining balance within 60 days. Finally, taking money out means there’s less money in the account earning returns for you, which could derail your retirement savings plans.

Bottom line: A 401(k) loan may be an option for getting your down payment, but it’s risky — and don’t even consider it if there’s a chance you may change jobs in the next five years or if you’re within 10 years of retirement.

If 20% down just isn’t possible

The traditional 20% down payment is still the best option. For one thing, it lets you skip private mortgage insurance, an annoying expense that can put yet more strain on your budget.

But if 20% down is not in the realm of possibility, there are programs that can get you into a house with a much smaller sum. For example, FHA programs let you pick up a mortgage with as little as 3-1/2% down if your credit score is at least 580.

Assuming that you decide to shoot for a mortgage of $180,000, saving a 20% down payment allows you to set a maximum affordable home value of $225,000 — and calls for a down payment of $45,000. On the other hand, if you decide to save only 3.5%, then the most house you could afford would be about $190,000 — that will give you a mortgage of $183,350 and a down payment requirement of $6,650.

Article provided by money.cnn.com

New to the Market in the Coronado Village!


816 H Avenue, Coronado CA 92118

Located in one of the most desirable areas of town, this spacious 4 bedroom, 3 bathroom home is beautifully updated with plenty of space for family and entertaining! This custom house was designed with a large front patio, sizable bedrooms, an attached two car garage, plus more than 2,700 square feet of living space! In addition, there is a third floor attic space, allowing for an optional office or exercise room, storage room, plus a large deck with downtown views! Remodeled in 2011 with attention to architectural design and utility, this wonderful property has a chef’s kitchen, two downstairs bedrooms, 9ft. ceilings, tankless water heaters, dual heating systems, and surround sound! The great room is flooded with natural light from the large sliding glass doors leading to an outdoor dining area. Enjoy the close proximity to the beach, schools and town in this Coronado gem!

Offered for $2,125,000

Co-listed with Carrie Mickel, BHHS

www.816HAve.com

Coronado Village Sales in past 30 days

Did you know??? In June, there were 14 homes that sold in the Coronado Village. 12 of them closed for less than $2mil. This part of our market is moving quickly – time to take advantage of low interest rates and buy or sell now!

Just Listed in Coronado Village! Not in MLS yet

COMING SOON!!!!

816 H Avenue in Coronado Village

Located in one of the most desirable areas of town, this spacious 4 bedroom, 3 bathroom home is just what you’ve been looking for! This custom house was designed so there is a large front yard and patio, an attached two car garage, plus more than 2,700 square feet of living space! Additionally, this property offers a third floor attic space, allowing for an optional office or exercise room, plus a large deck with downtown views! Remodeled in 2010 with attention to architectural design and utility, this wonderful property has a chef’s kitchen, two downstairs bedrooms, and 9ft. ceilings, which make this large home feel even more spacious! There is an abundance of light in the great room from the large sliding glass doors leading to an outdoor dining area. Enjoy the close proximity to the beach, schools and town in this Coronado getaway!

Offered for $2,125,000
(professional photos to follow)

Co-listed with Carrie Mickel of Berkshire Hathaway HomeServices

Accessory Dwelling Units

 

Accessory Dwelling Units: Here for a “limited time”?

There has been a lot of discussion recently about the state’s January 1st implementation for Accessory Dwelling Units (ADU) and it’s important to understand a bit about the reasoning for the change in code and also how this could affect our community.

So let’s start by defining what an ADU is: An ADU is as a second unit constructed on a single residential parcel, more commonly known as a granny flat or in-law unit. It can be rented out, detached or attached, a conversion from an existing structure or can be newly constructed (with limits on side and rear setbacks).

The concept behind these dwellings is to help satisfy the shortage of housing in California. Some of the commonly outlined benefits of ADUs are:

  • They are an affordable way of adding more housing options to a property without having to acquire land or add additional parking
  • They can provide income to the homeowner if they choose to rent it
  • They allow extended families to be close to one another, while still allowing for privacy and a sense of independence
  • They provide flexibility for families and others to offer housing for younger or older generations

Regardless of the orientation or attachment to the main home, an ADU cannot be sold separately and is legally part of the parcel, which cannot be split. So how does this affect Coronado. Before Jan 1st, 2017, the only properties allowed to have a granny-flat were the large lots, typically over 7,500sq.ft. The new law changes those limits; any single-family zoned parcel can now build or convert a structure into an ADU.

One of the most common questions coming out of the discussion regarding ADUs is how allowable square footage plays in. So far, Coronado has stated that the limit imposed by the City’s Floor Area Ratio (FAR) still applies; if a property is already at the limit imposed by the FAR, the ADU will either have to be built within the existing floor plan, or the existing floor plan will have to be shrunk by the size of the ADU added.

The new code is complicated and is taking cities quite a bit of time to update their local codes to reflect the changes. Since this is a state standard, local governments must approve ADUs until the jurisdiction adopts a compliant ordinance. It is likely that ADUs will become more restrictive in Coronado in the near future based on the lenient restrictions implemented on a state level, which the City of Coronado is already undertaking and discussing with feedback from concerned residents and hotel administrators alike.

If you would like more information on the subject, here are some resources which may help: Webinar: https://www.youtube.com/embed/t57BjryLpfY

Coronado City Council mtg Item#10e https://coronado.12milesout.com/meeting/council/3-7-2017