Title says it all, but I'm looking for a five year plan. How can I save enough for a down payment? And what other things can I do, over these next five years, to prepare me (credit score improvement, etc.)?
Give it to me straight Team.
(oh, and some related details: credit score sits at 760, I have literally no debt at the moment, I can't imagine buying a $1M home so let's assume the down payment will be south of $100K, I'm 32 years old, and I've got a grad degree)
Rule number one - Live below your means. If that means beans and rice for lunch and rice and beans for supper, then that's what it is.
Step 1 - $1000 in the bank as an emergency fund. An emergency is defined as, "If I don't spend this money in my emergency account, my next meal comes from the dumpster behind McDonald's"
Step 2 - Pay off all existing debt. All of it. Every penny. List your debts from smallest to largest. The interest rate on that debt *does* *not* *matter*. Throw every spare penny at the smallest debt, and make minimum payments on all others. Once that smallest debt is paid off, work on the next debt, which is now your "new" smallest debt. Add what you're not paying on the debt you just paid off, to the minimum payment on your "new" smallest debt, and knock it out. You'll find in no time (commonly less than three years) you'll have no debt at all.
Step 3 - After paying off that final debt, continue to "pay that bill" each month to yourself, by putting it in savings. First, build up your emergency fund at this point to 3-6 months of living expenses.
Step 4 - You will need at an absolute minimum, 15% down to buy a house. More commonly it will be 20%. So if you're looking to buy a $100,000 house, (not unrealistic any many areas of the country) then you need to save at least $30,000. Why 30%? Easy. If you put 15%-20% down, that leaves you $10K to "move in". There's more to buying your first home besides the down payment. You're gonna spend some serious money making your new home move-in ready. First order of business is curtains. Then you need furniture. You have to pay deposits to the electric, water, gas, etc. I can tell you for a fact that the "first run" to the grocery store to stock the kitchen will cost you no less than $500. YOu need plates, pots, pans, cooking utensils, silverware, etc. That's just the kitchen. In the bedroom you need more than a bed and curtains for the windows. You need pillows, linens, a place to store your cloths, coat hangers for the closet, picture hangers for those pictures you want to hang on the wall. Basically, you can see how easy it is to justify $10K to set up a new house and move into it. If you're married, then you can double that amount. If you have kids, triple it.
Now I've barely touched the tip of this iceberg. So I encourage you to talk to other homeowners about their first time experiences. Ask them what they would have done differently, if they had known or realized it at the time that they could have done things differently. So learn from the "shoulda, coulda, woulda" experience of others, as much as you possibly can. There's no such thing as to much knowledge.
Most importantly, when it comes down to the wire and you're seriously ready to buy, it's a scary feeling that first time. But follow your gut instincts and you'll come out ahead. If it doesn't "feel right", then most likely it isn't right. Do what makes you feel good, not what makes you look good. Feelings last forever. Looks, not so much.
What Carl said is pretty good advice, a couple of things that might help you plan is know where you want to buy and find out how much homes in that area typically sell for now and what they are estimated to cost in 5 years. I'm in a similar situation, except I'm wanting to buy now and I've been looking for a home in my area and I'm find out that the price is way higher than what it was 5 years ago. Also research what home buying assistance program are available in your area to find out what they offer as well as requirements, especially if you are a first time buyer. Some lenders may have programs that only require 3% verses 20% down payment at closing. But, basically you just want to start putting money into a saving that you don't have easy access to, so you won't be tempted to spend and see if your employer has any programs that will match what you will put into a savings. Hope this helps and good luck on exceeding your goals!
It's kinda humorous sometimes, the folks I talk with looking to buy their first house. Usually newly married couples. They say they'll be fine with the down payment in the bank, and don't need anything extra. They "justify" it with the fact that they'll be using the furniture they already own, that's in the house they're now renting and that "friends" will be helping them move and relocate to the newly purchased house. Then I remind them of a few things.
- The curtains you have will not fit all the windows in your new house. Curtains aren't cheap, and the wife doesn't care about the cost either. She's not going to tolerate those piss green curtains in "ANY" room, and especially not *her* bathroom.
- Those "friends" who helped you move? They're expecting to be invited to the house warming party the next weekend. While they may not get steak and lobster, there damn well better be beer!