Illustrating Your Options

Last night, I finished reading a book (some of you might be shocked to learn this – you might find it even more shocking to learn that the book had absolutely NO pictures, just WORDS), and the author made a point at the end of the book that he purposefully didn’t give a step-by-step guide on how to follow his advice – he felt it would be better to let the reader determine her/his own path. Kudos to the author for his . . . laissez faire approach to teaching, but that doesn’t quite work for me. In light of recent developments with the economy and signals that the housing inventory shortage should come to an end in about 18 months, I thought I should go back to an article we published previously that gives a step-by-step guide on how to prepare oneself to purchase a home. Here goes:

I once met a man whose upper body was entirely covered in tattoos. He told me that all this ink took well over 100 hours in total at the cost of $85.00/hour. Mortgage geek math: that’s $8,500, and THAT’s a down payment! Huge misconception: 20% is THE required down payment. Not true! A very popular loan option only requires 3.5%. For the Illustrated Man, $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 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!

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