I
recently read an article online about a gentleman who set a goal to purchase a
home and then mapped out very specific steps as to how he would reach that
goal. Personally, I was extremely
impressed by his discipline and foresight.
His goal had two parts to it: save $150,000 for a down payment and
purchase a home. Before you choke on
your coffee or spit soda through your nose, let me disclose here that the
gentleman who is the subject of the article was purchasing a home in the New
York City area. Now that your blood
pressure is returning to normal and you’ve spared your freshly ironed white
shirt from staining, I’ll give you a breakdown of his plan:
• Starting
in 2007, he looked at his annual salary and then took a look at the amount of
credit card debt he was carrying; he cut back on as many expenses as possible
so he could pay off that credit card debt in the first year. Touché!
• He
kept his lifestyle scaled back to the point where he had set it to pay off his
credit card debt and put that additional money in the bank.
• After
two years of doing this, he had quite a chunk of money set aside, and he
invested it in a mutual fund for faster growth.
Touché again!
• He
continued in this vein – socking money away where he could and being careful
about how his money was invested – until 2014.
Yes, I did the math – that’s seven years!
• With
$150,000 saved, he got prequalified and started looking for houses just outside
the city. It took him until September
2015 to find what he wanted and within his price range, but his hard work and
patience paid off: he purchased his first home.
There
are some wonderful lessons in this gentleman’s story: the value of setting
goals, the discipline to follow a plan, patience paying off, etc. These are all things that a lot of people
have forgotten or refuse to implement in their own lives. There’s one more lesson that this story
brings to light – and it’s one that the new homeowner in the article could have
used.
The
notion that you need to save 20% for a down payment is outdated – and it’s one
that can really
do a disservice to you. There are MANY
programs available that require little or no down payment. Yes, I did say “no down payment” – and I’m
not talking about a VA loan (which TOO MANY people fail to use although they’re
eligible – that’s another subject for another day). Let’s say you had the foresight, patience,
and fortitude to save just a third of what the gentleman in the article saved –
that’s $50,000 that doesn’t need to go as a lump sum into a down payment. With interest rates as low as they are right
now, pursuing a mortgage with a 3% down payment requirement, for example,
allows you to take a VERY LARGE chunk of that $50,000 and do A LOT of great
things – one of which, of course, is to reinvest it in something that is
earning more than what mortgage interest rates are doing right now. Also, by taking advantage of one of these
programs with a lower down-payment requirement, you can get into a house A LOT
sooner – which could mean you could move out of that apartment where your
roommate has a couch that smells like beef and cheese, and you’d have a little
extra cash to buy a new couch. Touché!
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