BOSTON CONDOS FOR SALE: SAVING FOR A DOWNPAYMENT
For someone interested in purchasing a Boston condo for sale, the first step is to save up for the minimum down payment for that dream home.
SAVING FOR A DOWN PAYMENT
There are plenty of ways to plan for a down payment; it takes time, patience, and commitment to the plan. A down payment is a single lump sum that the lender (your bank) requests the buyer of a piece of property to pay up front before issuing a mortgage to the buyer. The higher the down payment, the lower the monthly rate and the less you might pay over the life of the loan. The average down payment is around 20 percent of the purchase price – but there are a lot of different mortgage opportunities that can get those down even lower.
CALCULATING THE MORTGAGE AMOUNT
The first step is figuring out how much you can responsibly spend on a house. Usually, your bank will limit your mortgage amount (the amount you can spend on a house) to around 28 percent of your monthly pre-tax income. However, if your income fluctuates (i.e., you work in a seasonal industry), you may want to limit that even further to 20 percent. Moreover, don’t forget to anticipate maintenance, bills, HOA fees, and the other costs associated with a home.
SET A SAVINGS PLAN
Once you know how much you can get for a mortgage, you will know your price range for the house you can buy – which tells you how much you will need to save. Think about the plan realistically. For example, if you need to save $100,000 (assuming a home price of $500,000) in Boston for 20 percent down over five years, you will need to save about $1,670 a month to hit your goal in five years. If you’re like most people, you probably cannot set aside that much a month. However, this gives you an idea of the process you need to save that money for your mortgage down payment.
ACCELERATING THE PROCESS
Luckily, you aren’t limited to using simply a savings account to reach your goal; you can invest your money in stocks. While stocks are riskier than a savings account, if your plan is several years in the making, you can afford the occasional dip in the market. Moreover, you can likely save less money because your money will be earning you returns.
Generally, you will want to invest in a stock index ETF. ETF will diversify your holdings and reduce the risk of loss. You put a regular amount of money into the ETF every month and watch it grow. Additionally, don’t stick all of your money in stocks – limit yourself to about 25 percent (to shield yourself from severe market changes). The other 75 percent can be invested in a high-yield savings account, money markets, bonds, CDs, and other lower risk investment tools.
While you cannot withdraw money from your 401(k) for most situations – you can if you are doing it to purchase a house. If you have a well-funded 401(k), you can borrow up to one-half or $50,000 (whichever is less) to put toward your house. You will have to pay the money back within five years (including interest). Luckily, the interest is being paid to yourself, so ultimately, who cares? Pull money from your 401k when you need that extra little bump to get yourself to 20 percent.
t’s important to work with a buyer agent that will help you with tour down payment so you can end up with the Boston condo home of your dreams.