How do you save for a home?

[Axon]

All,

I'm really interested in purchasing my own home. I make about $125,000 a year. I feel like I should be able to save more aggressively, but after everything I have to take care of, I usually put away $1,000 a month. If I can put more away I do.

I don't really blow up my money. I take the train in everyday here in NYC. My apartment isn't wild by NYC standards at $1600 a month. I have a basic cable/internet package. My student loan is steep, but unfortunately, I can't turn back the clock. I have a single small credit card that gets paid off monthly and never carries interest.

Still, I see hundreds of people buying homes and it just absolutely eludes me as to how it is possible. I'd like to buy something reasonable, like $250k, but even that requires a daunting down payment of $50,000. This will take me 50 months to do.

What am I missing? It feels impossible. I've been doing this for almost 18 months and my will is waning. Is there something I'm missing? My parents own nothing and everything I do financially is without any guidance. Plz 2 help.

 

[Capt Caveman]

You should be able to save more based on what you've listed and aren't you investing any of your savings? How much are your student loans a month?

 

[bignateyk]

All,

I'm really interested in purchasing my own home. I make about $125,000 a year. I feel like I should be able to save more aggressively, but after everything I have to take care of, I usually put away $1,000 a month. If I can put more away I do.

I don't really blow up my money. I take the train in everyday here in NYC. My apartment isn't wild by NYC standards at $1600 a month. I have a basic cable/internet package. My student loan is steep, but unfortunately, I can't turn back the clock. I have a single small credit card that gets paid off monthly and never carries interest.

Still, I see hundreds of people buying homes and it just absolutely eludes me as to how it is possible. I'd like to buy something reasonable, like $250k, but even that requires a daunting down payment of $50,000. This will take me 50 months to do.

What am I missing? It feels impossible. I've been doing this for almost 18 months and my will is waning. Is there something I'm missing? My parents own nothing and everything I do financially is without any guidance. Plz 2 help.

You don't need that much of a down payment, especially if you actually make $125K/yr.

My wife and I bought a $350K house for less than $25K out of pocket at closing. Buy the house now and put extra payments toward the principle until you are better than 20% to get rid of PMI. That's what my wife and I did.

 

[dave_the_nerd]

Get married to somebody else who makes about the same money you do, and save their salary.

 

[IronWing]

What is your monthly student loan payment?

 

[MiniDoom]

I just paid the minimum 3% down.

 

[bignateyk]

You'd be paying less than $1600 a month on a 250K house and if you bought a house and you'd actually be making equity in it. Just buy a house with <5% down.

 

[Axon]

You should be able to save more based on what you've listed and aren't you investing any of your savings? How much are your student loans a month?

Steep. about 1100 a month.

I'll give you the budget.

about 6000 monthly
1600 rent
1100 loan
1000 "random" stuff - taking the lady out, helping out my dad with rent, etc
140 cable tv/internet
100 NYC metrocard
89 gym
200-300 food


That's about it. I occasionally put away 2k, but it depends on what happens that month. Usually its between 1000 and 1500. Which believe me, appears to be not bad at all.

I don't have the FAINTEST clue about investing. Again, I am the first in my family to earn over 45k a year, let alone six figures. I have zero guidance. I am a plaintiff's attorney in NYC. My bosses are millionaires and could care less/have forgotten what its like to make only okay money and not crazy money.

 

[Svnla]

Here are some of my suggestions, they will not be easy or pleasant. You can only have extra money by either a) cut back expense or b) increase your income

1. Get a room mate or cheaper rent.

2. Cut back on ALL "un neccesity" expenses such as eat out, drinking, alcohol, movies, etc.

3. Cut back on utilities such as lower thermostat in winter and higher in summer.

4. Cheaper phone plan or cable/sat TV.

5. Cheaper insurance by higher deductible (but make sure you have the money to cover it).

6. Lower food cost by cook/make them at home and bring lunch to work.

7. Cut back on clothes, games, and ALL entertainment expenses.

8. Pay ahead to get cheaper fare for your train/bus or get discounts.

9. Make a budget spreadsheet for a few months and write down EVERYTHING and I mean everything. Go over them and separate them into two areas: NEEDS (rent, foods) and WANTS (eat out, games, drinking). Lower the NEEDS as much as you can and cut back the WANTS as much as you can.

10. Get extra job to earn extra money if possible.

Good luck.

Edit: I see your budget and this is what I would do:

Cheaper rent if possible (see above).

Cut back on the $1K/month of random stuff.

Cut back the cable, broadband only and see if you can get cheaper plan by call and ask if you don't have any discount, you would be leaving.

Metrocard (see above).

Get exercise at home or park or YMCA.

Cut back on food expense (see above).

There are much more if you really want to do it. No, I am not telling you eat ramen noodles and drink tap water but you can save much more than you think you could.

 

[Axon]

I just paid the minimum 3% down.

This is what I'm talking about. How? What bank? I've heard stuff like this and I'm just so derp about it.

 

[s0me0nesmind1]

The current 30-year mortgage rates are backed by 2 things:
1) The government
2) You paying them PMI for 5 years (Or simply, mortgage insurance - approx ~$50 month depending) so 12 months x 5 years x ~$50 month = over $3000 down the drain for YOU to pay THE BANK as an insurance for the bank risking their money with you.
3) This is the ONLY reason people are getting these loans with 3% down payments.

If you want to properly own a home do the following:
1) Pay off your loans. Every additional month is another month that your losses are stacking.
2) Slowly save for a 20% Down payment on a home. Baby Steps.
3) Build your credit in the mean time. Your credit is what determines your risk. Your risk determines what the bank is willing to loan you (% Interest Rate)

Or just dive in like every other retarded American with a 3% down payment making minimum payments and upon the next bubble burst find yourself flat on your ass with no money or equity.

All I can say as a homeowner is this: Don't underestimate maintenance costs. Best of luck.

 

[JimKiler]

My wife and I saved for a wedding and townhouse by not going out on weekends and not going out to eat for lunch. We both brought lunch to work and saved lots of money that way. They key is to find stuff you like that can be frozen, like chili, pulled pork, lasagna. And bring to work during the week.

 

[s0me0nesmind1]

My wife and I saved for a wedding and townhouse by not going out on weekends and not going out to eat for lunch. We both brought lunch to work and saved lots of money that way. They key is to find stuff you like that can be frozen, like chili, pulled pork, lasagna. And bring to work during the week.

I said screw it to the concept of "Lunch" entirely. I bring in some raisin bread for breakfast and then have snacks throughout the day. The most filling parts are greek yogurts with ~15g of protein. Bring the occasional fruit piece and a small bag of peanuts and you're good.

The only time I go for lunch is when I'm invited/asked.

 

[jaedaliu]

I'll give you the budget.

about 6000 monthly
1600 rent
1100 loan
1000 "random" stuff - taking the lady out, helping out my dad with rent, etc
140 cable tv/internet
100 NYC metrocard
89 gym
200-300 food

That's about it. I occasionally put away 2k, but it depends on what happens that month. Usually its between 1000 and 1500. Which believe me, appears to be not bad at all.

The first problem you have is perception of what is good and bad. $1000 - $1500/month sounds pretty bad to me. My wife and I have lower expenses than you, but we save $3000 - $4000/month on a very similar salary.

$1000 "random stuff" is way too big to be considered random stuff if it equals your minimum savings amount. You should break that down a bit so that you can see where your money is going.

As for your loans, FHA is the program that lets you buy with 3%. There's the whole "cash is king" theory, where you can save more and invest it instead of paying things off quickly. but I'm pretty risk averse, and would rather own my first piece of property outright than float a loan for 30 years.

 

[purbeast0]

the whole 20% down thing is not realistic in expensive areas for most people purchasing their first home. my wife and i put down 5% on a $420k house, plus had to pay closing costs on top of that. 5% on that is like $21k + a ton of closing costs so it's no joke. realistically we COULD have saved to get the traditional 20% down, but it would have taken us years to do so as with your situation, and it's not worth it when we were paying nearly $1500/mo in rent. and we can easily afford our mortgage now and still live as we did when we were paying $1500/mo for rent.

the best part about it though is that we don't have PMI either. i believe navy federal is the only place that doesn't have PMI on mortgages with less than 20% down. you can get 100% financed with them and not have PMI.

 

[PricklyPete]

This will not be a popular answer here, but my recommendation would be to focus on paying off your student loans and then worry about a house.

 

[blackdogdeek]

Get married to somebody else who makes about the same money you do, and save their salary.

This is pretty much what we did.

 

[SaurusX]

Living in NYC is part of the problem. Making $125K sounds great, but you're living in one of the most expensive cities in the world before even thinking about NY's taxes. 8.875% sales tax for NYC and then a 6.45% income tax for your bracket.

 

[Imp]

Steep. about 1100 a month.

I'll give you the budget.

about 6000 monthly
1600 rent
1100 loan
1000 "random" stuff - taking the lady out, helping out my dad with rent, etc
140 cable tv/internet
100 NYC metrocard
89 gym
200-300 food

You honestly don't look that bad. The loan is the biggest killer, but you gotta pay that back... The gym, food, and random stuff might be the only items under your control. Lower rent is possible if you find a crappier place (or better deal), or find a room mate.

Getting hitched in a marriage of convenience is probably the best idea. Ahem...

Honestly, what I've realized is that there are people who just over-extend themselves, live paycheck to paycheck, just to say they "own" their home. They become slaves to their mortgages -- before anyone shits themselves, I didn't say "everyone" or even quantify how many. Only 5% down is required, along with some other qualifications, in Canada... Might explain why there's a massive housing bubble.

 

[s0me0nesmind1]

Getting hitched isn't going to help you. Ask any married men

No seriously, I have a wedding to plan for in March. Shit ain't cheap, and I'm not just talking the wedding

 

[Possessed Freak]

This will not be a popular answer here, but my recommendation would be to focus on paying off your student loans and then worry about a house.

You get one great loan in life: student loans. Typically you could invest in ANYTHING and make more in interest on those investments than you paid in interest on that loan. Why anyone would pay back that early is beyond me.

Of course, there is one assumption being made. You didn't get roped into some shady business "school" model who was really in the loan shark business.

 

[tfinch2]

Steep. about 1100 a month.

I'll give you the budget.

about 6000 monthly
1600 rent
1100 loan
1000 "random" stuff - taking the lady out, helping out my dad with rent, etc
140 cable tv/internet
100 NYC metrocard
89 gym
200-300 food


That's about it. I occasionally put away 2k, but it depends on what happens that month. Usually its between 1000 and 1500. Which believe me, appears to be not bad at all.

I don't have the FAINTEST clue about investing. Again, I am the first in my family to earn over 45k a year, let alone six figures. I have zero guidance. I am a plaintiff's attorney in NYC. My bosses are millionaires and could care less/have forgotten what its like to make only okay money and not crazy money.

If you want to get serious about saving, here is my suggestions:

1.) You need to dig into this $1000 "random" bucket. If it's that much money, it's not random. You need to figure out what is going on here.
2.) Get rid of cable TV
3.) Get rid of $89 gym membership

Do you have a cell phone? How much are you spending on this?

Are you really only spending $200-300 a month on food, or is this overlapping with your $1000 random bucket?

 

[s0me0nesmind1]

You get one great loan in life: student loans. Typically you could invest in ANYTHING and make more in interest on those investments than you paid in interest on that loan. Why anyone would pay back that early is beyond me.

Of course, there is one assumption being made. You didn't get roped into some shady business "school" model who was really in the loan shark business.

Uhhh you pay those back because typically those % Interest rates will increasingly go up. It's one thing if you're talking about a fixed rate mortgage, it's another if you're talking about Student loans that randomly double to 7.2%

Get rid of those student loans. Toss a damn good amount of extra into it - while placing the small remaining in a savings for a big down payment.

Also, if you do an FHA loan as far as I know paying PMI is a part of the government backed loan - not the bank itself. I would honestly go for avoiding it if possible.

 

[tfinch2]

You get one great loan in life: student loans. Typically you could invest in ANYTHING and make more in interest on those investments than you paid in interest on that loan. Why anyone would pay back that early is beyond me.

Of course, there is one assumption being made. You didn't get roped into some shady business "school" model who was really in the loan shark business.

My federal student loan rates were 7%. Why I wouldn't pay back that early is beyond me.

 

[Axon]

Living in NYC is part of the problem. Making $125K sounds great, but you're living in one of the most expensive cities in the world before even thinking about NY's taxes. 8.875% sales tax for NYC and then a 6.45% income tax for your bracket.

This is correct.