An Indelible Lesson

Recently, I saw this gentleman at the gym whose upper body was almost entirely covered in tattoos. I struck up a conversation with him and learned that it took well over 100 hours, and it cost $85/hour. As we continued to chat, I was doing the math in my head: $85 X 100 hours = $8,500! Being the mortgage geek that I am, my next thought was, “I’m staring at a walking, talking down payment on a house!”

There’s a huge misconception floating out there that 20% is required as a down payment. There are those products that do require such an amount, but there are so many others that don’t. A very popular loan option only requires 3.5%. In the case of my new gym acquaintance, $8,500 represents a 3.5% down payment on a $242,000 mortgage – that’s not a palace, but that amount of money could buy a modest home in a nice neighborhood.

A recent poll revealed that potential homebuyers believe that because of student loan debt, they have no extra funds to save for a down payment. Like any human being who wasn’t born with a million-dollar trust fund, I understand the realities of budgeting and finances – there are so many demands on our income that it seems impossible to save enough for a down payment. Despair not, my fellow regular people! Let’s look at a real-life scenario that will give you hope – and a VERY workable solution.

A responsible young couple sets their sights on a place close to downtown: a small home with an asking price of $180,000. They could get a bigger house that’s new if they move farther away from downtown, but they decide that this option is best for them: less of a commute, closer to restaurants they love, etc. A 3.5% down payment is $6,300 – they have a little bit in savings, but they want to keep it there for emergencies. They need a plan.

Their VERY smart realtor sits them down and does some VERY simple math with them:

• The average person spends $8/day at a Starbucks/Dunkin Donuts/Peet’s – that’s on a drink and something to nosh (bagel, scone, that weird granola parfait, etc.)
• For a couple, that’s $16/day X 5 days/week (we won’t count weekends – live a little): that’s $80/week or $4,160/year
• A 3-lb bag of coffee at Costco costs $12.00, and it makes between 100-120 cups – conservatively, that’s a 10-week supply for two people
• Using the Costco coffee, they can probably do the year with 5 bags for a total of $60.00
• All told, switching to Costco for JUST one year, the couple could save $4,100
• As most young couples are wont to do (because they’re working and are busy), they tend to eat out 3-4 nights/week
• By cutting out just one of those dinners out each week, that could save $50/week – that’s $2,600
• With these two “tweaks” to the couple’s lifestyle (for JUST one year), they could save $6,700 – and that would keep their savings account wholly intact
• Even if home values increased by 5% over the year of saving, that would put the home (or one like it) at $189,000 – 3.5% of that is $6,615, and the couple has $6,700.

Is it a coincidence that the difference between the amount saved ($6,700) and the down payment needed ($6,615) is $85.00? That’s just enough to spend an hour with a tattoo artist where the couple can have their favorite realtor’s name forever inked on their biceps. It’s like it was meant to be!