The down-payment chronicles
How exactly do real homebuyers scrounge up money for a down payment? For these three hopeful first-time buyers, it took discipline, imagination and grit.
Once you decide to buy a home, one of your biggest obstacles is likely to be saving for a down payment. Given the competition from all of life's other financial demands, it's no easy job.
Some lucky buyers get help from family or friends. Seattle real-estate agent Ardell DellaLoggia recently helped a young couple who received, as a wedding gift, enough cash to cover their entire down payment. (Bing: How to ask for money as a wedding gift?)
Few are so lucky. Here are three stories of first-time homebuyers and how they did it.
1. Ryan Ferrell, Chicago
Ryan Ferrell moved to Beijing after graduating with a degree in neurobiology from the University of California, San Diego, in 2008. He had attended a college summer program there and won a Chinese government grant to return for another year, to study Mandarin.
Living in China transformed his thinking about money. Coming from an affluent home, it was humbling, he says, to see "how different life can be when you're in a lower income."
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Among his friends were poor, thrifty migrant farmers. He started imitating them, bargaining at stores and markets, at first to broaden his language skills but soon to get the same prices that locals were paying. "I bargained for pretty much every purchase," he says. Everything — clothes, groceries, rent, even restaurant meals — was negotiable, he found.
Returning to the States at 22, he decided it was time to save for a home. His mother had purchased her first house, a fixer-upper in San Jose, Calif., at 26.
"I'm not wealthy, by any means," he says, but now, working in public relations for biotech companies, he was earning enough to choose between investing in the stock market or a home.
After a job move took him to Chicago, he squirrelled away emergency savings equal to 18 months of his living expenses, so he could feel safe and independent no matter what comes. "People don't think through how much can go wrong," he says.
Then, he saved a down payment, continuing all the while to contribute to his retirement plan. His nest egg got its biggest boost from two tactics:
- He banks half of each month's income.
- He earned three double-digit raises in three years and banks those salary bumps while maintaining a frugal lifestyle. (Savings: $20,000 in three years.)
Two more windfalls helped. He invested other savings "aggressively" in the stock market, reaping $5,000 for his down payment Selling his car added $4,250.
Ferrell’s frugal strategies
In all, he has amassed nearly $70,000 toward his down payment, including savings from college jobs. He does it by keeping monthly expenses -- including utilities but not rent -- under $500, and often under $375.
His frugal tactics include:
- Trimming restaurant meals on evenings and weekends from as many as six a week to two and sticking with "cheap joints" and eateries offering coupons (savings: around $50 week or $5,200 in the two years).
- Brown-bagging lunches (savings: $7 a day or $1,750 a year).
- Bargaining still helps occasionally, although he misses the days of haggling for 50% or 60% off list prices in China.
- Holding off purchasing clothing until traveling in Third World countries (savings: about $700 in three years).
- Walking to work (savings: around $300 in two years).
- Moving to a smaller room in the rental apartment he shared with friends (savings: $4,800 in two years).
- Applying frugality even in the quest for love: In Chicago, he found a partner, Tai, who also enjoys inexpensive entertainment such as public festivals, weekend hikes and board-game evenings with friends over pricey clubs and concerts. (Savings: roughly $200 a month, or $2,400 a year -- "not to mention the savings from co-habitation," Ferrell says.)
Having a savings goal has forced him to decide what matters most, he says. Experiences — travel and relationships, for example — trump things. When he splurged on travel to Turkey recently, it was a budget trip and he was able to pick up some expenses for a traveling companion who is still in school.
"My generation is so focused on consumerism," he says. "They have to be seen at this bar, in this brand of clothes. It completely misses the point. They are wasting their money when they could be setting themselves and their family up."
- MSN Money: College tuition by the month
In May, he made an offer on a $200,000 loft condominium in Chicago's South Loop neighborhood. "If all goes well," he says, "I should close in November." He'll put 25% down — roughly $50,000.
Buying a short-sale property entails waiting and uncertainty, he knew, but when he saw the loft he knew it was "home." It's a 1,250-square-foot open design without lots of storage — a plus, in his view, since there's little room for new furniture and possessions.
He's learned a lot, he says. For one thing, he had not realized that his down payment would be just one of several out-of-pocket expenses. "Closing costs and immediate repairs are about $6,500, not including new furniture or tax escrow," he says. "I didn't realize getting into the house hunt how much the other costs can add up."
I served in the Navy 4 years, went to school on the G.I. Bill, and bought our first home with no money down. With the profit from selling the first home, the down payment for the next home was there when we needed the cash. We now own our current home, watch our money carefully, and have no debt.
My wife and I are retired, and actually have more income now than we we both worked. We have small retirements, but nothing extra-ordinary. We are not "consumed" by money, but take advantage of our circumstances. We keep automobiles at least until we pay off the financing. We have a financial advisor and a very good CPA. We sometimes exchange services with people we know. And, you don't need a bunch of money to enjoy yourself. We are grateful.
I am so pround of these young kids managing their finances.
Just yesterday, I was talking to a pal about a family issue when she made the comemnt -- "Oh, I understand. I know you are frugal." I was suprised hearing it coming from her because aside from meeting her in the street and saying "hello" or "hi" we never had any common financial agenda together. Her impression of me being so-called "frugal" came from the fact that I have a 12-year old car, she said. (So, what? It still works... and I don't envy or see the pleasure in someone else's choices!) I am too focused on my goals for that.
Also, although I live in a rented apartment -- an apartment I love and have improved on it since I had it over 20 years ago -- I also have a two-family house in walking distance that I have rented out. Should this be a case of frugality? I just love my apartment more than my house. What is wrong with that?
What I don't understand is that people assume that material things are everyone's pleasure! We all don't desire the same pleasures. For me, it has always been taking care of others and my education -- and I paid an arm and leg for it. I love to give extras to those who may need it and I only shop for education -- to educate myself. I am glad I did because I have never been financially broke (thank you God) knowing that I can always use my skills and knowledge to make money if even no employer hires me.
That's the difference between the successful and the strugglers. Those who usually succeed are mentally content with their lot. Those who struggle are usually visually competing with their neighbors although they don't have the same financial resources to support it. That's the difference.
Good luck to all of you who are focused on doing the right thing financially. God bless you all.
It is not easy... We are a family of 5 and decided we could live off of 1 paycheck and bank the other.
It took us 8 years but we are completely debt free no credit card, no car payments, and no mortgage as we bought a foreclosure for cash. We are mortgage free! It was an 8 year commitment but well worth it now. We continue to live on 1 paycheck and it is totally stress free and it has taught the children to be good consumers and that having BLING doesn't make you any more special. Again, it takes commitment and focus but, it is the ultimate pay off. Good Luck !
1. Cool it w/ extras like Starbucks
2. Be responsible, a used car can be easily as good as a new car
3. His point about being seen at the next cool bar is spot on - let it go.
4. Take your lunch - easily a 7-10 savings each day it is done.
5. Do we really need a new phone / computer / tv every 6-8 months?
If we had folks paying attention to this stuff, we would have tens of thousands who wouldn't gladly walk away from their debt, leaving everyone else (read: government) to handle their irresponsible spending. I for one am completely tired of feeling like I am the only one still out here who has never walked away from a debt or a loan, I took it on, so I paid it off. I don't have a fancy boat, never (yet) had a new car, but I am on solid ground. Not bragging, just trying to be responsible in tough times.
Articles like this ought to be taught at every level in our educational system.
Realistically, today, impossible to save that much, that fast. Govt. burden on businesses -especially small companies- 1.people get paid less., insurance for health, home, and auto, is extremely high
2. if you don't have children, now the govt. takes more out of your paycheck in taxes
3. the higher cost of manufacturing, and agricultural products is at the market;
oftentimes I wonder how can someone survive with the expenses we are facing today without govt. support. That is the real issue. Govt. making people more and more dependent. Govt jobs have exponentially multiplied; govt. dependence by govt programs are also on the rise.
Young people are bombarded with life styles of celebrities or others who are not realistic and they cannot differentiate between reality of life and the c*ap they see on tv, so they decide their life is not good, get discouraged, and look for the easy life selling drugs, or illicit style...
No, this article is exactly the opposite of what real life is right now.
I'd suggest one start engineering their lives instead of living or accepting life, instead of
planning or fantasying about life. It's a matter of control; disciplined, rigorous, sacrificial
control directed toward a specific, time-framed objective.
I bought at 27 but my spouse produced most of the no-down GI loan funds required. And
we bought oblivious to all the problems that ownership can entail. How's an engineered life different from a planned one? It differs in almost every aspect, that's how. At any given
point prior to the decision and first actions attempted to save the down-payment, an
evaluation of ultimate saver success can be well predicted.
It's too late to start a home down-payment program if you've parented three kids, dropped
out of college and without any solid career grounding, work in a low-wage non-artisan or
non-technical discipline (in which where one would probably survive corporate cutbacks
or economic downturns), have parents with medical problems who'll soon retire, are broke
and you'll have to support them. It's too late if your physical energy levels are less than
pathetic, if you carry much weight, and/or have irregular living habits (you work and maintain
a home and that's about it). A whole spectrum of 'better life' is required to deliver that home
down-payment decision, regular retirement funds, reserves, emergency funds, on-going kids' college funds, and insurance coverage for medical, dental, car and mal-practice (if you're self-employed).
A home isn't a retirement fund -- it's an alternative to rented housing. Buying a home should
never require use of retirement reserves to fund. If the 'under-water' stories have taught us
nothing else, it's that you can't expect to live off a home sale proceeds at retirement if the
market's bad. In the recent Sandy Hurricane, 65% of the homeowners who were 80%+
devastated were under-insured, and carried no additional flood insurance; their deductibles
were also usually over 10K, and they lived paycheck-to-paycheck or nearly so.
It's even too late to start down payment saving if you can't perform basic math, can't track a
budget, can't live within a budget (two different cats), won't realize that one object can't
occupy two spaces simultaneously, won't acknowledge your spending weaknesses and
correct them, and won't take time to slow down to speed up your savings goals. It's too late
to save for home down if you won't continue your career education in spite of all domestic
and daily work commitments. It's too late to save for down if you won't sweat and sacrifice
for current minimal housing premises, shopping, groceries, a budget car, attire, leisure
activities, insurance/health protections. It's too late if you must support large expensive pets requiring costly veterinarian services regularly. It's too late to start if you won't kick all indulgences (or vices) that detract from down-payment attention, cost a small fortune
and divert one's interests from task at hand: acquire down- payment funds. Yes, it's a nasty
but determined engineered program that delivers down-payment funds.
Along with several of the others who commented, I'm not really sure what was so "imaginative" or "gritty" about these stories. You presented cases of seemingly single people who used the "creative" (gasp!) art of saving. Unlike the majority of Americans, these cases did not mention the outrageous student loans many of us have due to trying to better ourselves with a degree. You also fail to mention the fact many people have children, who are an expense in themselves. As one who has both children and a student loan payment, I can scrounge and save all day long, but it in no way, shape, or form amounts to anything near half of my paycheck.
I, too, have read Dave Ramsey's Financial Peace and have begun his progression to becoming debt free. As simple as it is in theory, it is not always so easy in application. Yes, it takes discipline and often creative tactics to pull yourself out of large amounts of debt, but frankly, it is much easier for some than others based upon a multitude of factors. The bottom line is this article does not appropriately represent the challenges of an average American in their attempt to purchase a home.
It looks like a lot of people responding to this see it as luck or is as unrealistic. They are the ones that are wrong. I made lots of mistakes in life and at 54, I continue to struggle trying to get my finances in order. However, if you were to read the Dave Ramsey Financial Peace literature you would see that this is not ridiculous. He mantra, live like no one else, so you can live like no one else.
You have to want to work for financial security from the start and get away from the stuffitis approach that almost everyone goes for. You don't need the next gen cell phone when it comes out or the next gen anything when it comes out.As to hurting the economy by not buying the stuff, that is a fallacy. If you run up debt, let's just say 100,000 at 12%, then $1000 a month if going from your pay to INTEREST charges you owe, not to economy from sales. You are paying the owneers of those credit companies who don't have debt for you to keep debt. Wouldn't it be better to not have the debt where you have that $1000 a month extra to buy the stuff you want (don't forget to save a share). I know a couple of frugal people who were both teachers. They never owned their house (always rented) until after their five kids were grown and out of the house for almost 10 years and they started saving then. I mean really saving. They bought a modest home and when they both died at ages 76 and 89, still had just over a million dollars in assets. The five kids never realized it. I know, I'm one of them. That realization turned me around completely.
You can save. When you do get a raise (or your first REAL job), put the increase or half of it in savings instead of spending to your new paycheck. Don't buy crap just to have crap. You can do what this guy did if you put your sights on the goal.
Berecca: I agree that the first guys story is crazy lucky and not applicable. And you're right on steps 1 and 2, but the degree doesn't need to be something most people can't accomplish. People need to get degrees and skills in fields that are actually hiring. I noticed the girl works in health care (Kaiser) and the second guy is a probation officer- and I'm sure niether of them had to major in neurobiology. If more people in my generation would pick majors based on things that they can get jobs in, it would make it much easier for them to support themselves in general including buying a house. Living in a lower cost of living area also helps- this article only features Chicago and California which are both crazy expensive, in less pricy areas you can get a starter home for much less, making homeownership a lot more reasonable.