Lauren Wellbank is a freelance writer with more than a decade of experience in the mortgage industry. Her writing has also appeared on HuffPost, Washington Post, Martha Stewart Living, and more. When she’s not writing she can be found spending time with her growing family in the Lehigh Valley area of Pennsylvania.
published about 9 hours ago
First came the pandemic home-buying frenzy and subsequent inventory shortage. Now, there’s debate as to whether we’re officially in a recession and interest rates have shot up, which means mortgages have become a lot more expensive. Did we mention home prices are at a record high? Suffice it to say, homebuying as of late has required a lot of resilience and so much pivoting it’s more of like a tap dance at this point.
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So, if your spending power and financial confidence are waning, what does this mean for your down payment savings strategy? Ahead, financial experts and real estate professionals share tips for how to adjust your down payment strategy in this tough economy.
“A more tempered tactic to not feel too deprived is to cut out certain non-essential purchases on a rotating monthly basis,” she says.
For example, you might cut out takeout delivery for the month of September. Any money you would have spent on that can go into your down payment fund, Dutton says. In October, maybe you cut out online shopping.
Many homebuyers assume they have to save up 20 percent before they can buy a house, but this is a myth, Dutton says. Putting that much money down can help you avoid extra fees like mortgage insurance, but it’s by no means a requirement or even the norm.
In fact, about 71 percent of first-time homebuyers put down less than 20 percent for their house purchase, she says. With certain kinds of loans, you can get away with a down payment of as low as 3.5 percent for FHA loans, or even zero percent for Veterans Affairs or U.S. Department of Agriculture loans, Dutton points out.
One of the best-kept secrets to buying a house that few homebuyers utilize are the hundreds of federal, state, and local programs that offer down payment assistance that can amount to over $10,000 in the form of grants, loans, tax credits, or a combination of benefits, Dutton says.
Only about three to four percent of first-time homebuyers take advantage of these programs, since many assume such programs only serve low-income borrowers. But if you look, you’ll find specialized programs that assist a wide variety of groups, such as minorities, people with disabilities, government workers, and more. Buyers should inquire with their state’s Department of Housing or at downpaymentresource.com. “In short, there’s down payment money just sitting around waiting for a qualified buyer who’s smart enough to ask around and find it,” Dutton says.
You’ve probably considered getting a roommate while you save for a house. But after you buy, consider “house hacking,” and renting out spare rooms or units of your home, suggests Phil Greely, a licensed real estate agent in Seattle.
House hacking, he explains, involves purchasing a home or small multifamily property and renting out rooms or units to supplement or cover your entire mortgage payment.
When you couple the house hacking concept with the FHA Multifamily loan, you have a magical combination of affordability and leveraging rental income, Greely says. FHA loans require only 3.5 percent as a down payment. When buying a two-to-four unit property (duplex, triplex, or fourplex) you can use that low down payment amount and the lender will count a portion of the future rental income towards your own income. In many cases, buying a fourplex while living in one unit and renting out the other three can bring in more money than your monthly mortgage, Greely says.
Don’t invest in risky assets hoping for a lucky break or trying to “catch up,” with your savings goal, cautions Doug Milnes, CFA with MoneyGeek. Rather, make spending a steady habit with an automated savings strategy, which allows you to have an auto deposit or transfer into your down payment fund, he suggests.
If there’s a silver lining in this current market, it’s this: “With higher interest rates, you’re getting a better rate on your savings account, and you can shop around to find accounts with the best savings rates,” says Andrew Rosen, CFP and the president of Diversified LLC.
Whether a project is small, like steps, or large, like a patio, figuring how much concrete you need is calculated the same way. How the concrete makes its way to your home is another story.
Although most projects are expressed in square feet, when buying concrete, you measure in cubic yards — a project’s length, width and depth determine the amount needed.
Multiply the length by width (to find square feet), multiply that by depth or thickness (for cubic feet) and divide by 27 (the number of cubic feet in a cubic yard) to determine how much concrete (in cubic yards) is required.
Building material suppliers offer free conversion charts for the math-challenged. Or you can buy inexpensive “enter your dimensions” hand-held project calculators; and, there are project estimators on the Internet.
Once you’ve figured out how much concrete you’ll need, determine how to get it to the job.
Concrete is a mixture of sand, gravel, water and Portland cement. It can be obtained in three ways: separate dry ingredients that you mix on site, premixed in the sack where you just add water, and ready-mixed from a batch plant and delivered by truck.
There is a variation to the ready-mixed concrete, where you can haul a small amount using a trailer provided by the batch plant or a rental yard.
Of the three methods, raw materials mixed on site are used the least frequently due to the availability of premixed products.
Premixed sack product is best for small projects like pouring a step or stoop, setting a few fence posts or making small repairs.
Premixed bags are reasonably priced. They’re available in two sizes: 60-pound (average $1.35-$1.80) and 90-pound ($2-$2.30). There are also a number of special mixes for setting fence posts and mailboxes.
They’re sold in 40- and 50-pound bags in two “no-mix” formats: 1) you dump the concrete into the hole, then add water, and 2) the reverse—first the water, then the concrete.
Taking on a path, patio or other sizable project using anything other than ready-mix can be a disaster. There is a point of diminishing returns where the number of bags needed for larger projects simply overwhelms the economy of mixing it yourself.
For example, a 10-foot X 10-foot X 6-inch patio needs 1.85 cubic yards of concrete or about two yards, with waste. Using 60-pound bags that yield 1-half cubic foot per would require 100 bags. The concrete will set faster than you can mix and pour it, and you’ll end up with a poor pour and a nasty finish (unless you are willing to work in phases over time).
Ready-mix is a no-brainer for mid-sized to large projects, but what about cost? If you use 60-pound bags, concrete for a patio this size ranges from $135 to $180. But you’ll need to rent a mixer, which adds another $40 to $60 per day. While ready-mix reduces work, it also boosts the cost. Each cubic yard costs about $65. However, a fully loaded cement truck will hold 10 cubic yards—and partial “short” loads cost $15 to $20 extra for every cubic yard less than a full load.
So, our 1.85 cubic yard patio first requires purchasing two cubic yards (including waste) of ready-mix (2 X $65 = $130) plus another $135 for the “short load” (10 yards full load minus 2 yards = 8 yards “short” X $17 per yard average)—and now totals around $265. With assorted fees added (environmental impact, fuel surcharge, sales tax, etc.), the final cost is about $295.
For this project, ordering ready-mix would cost from $55 to $120 more than premixed — depending on where you buy your bags and rent your mixer. It’s a small price to pay to finish the job in a day and to avoid a concrete project going bad.
Beyond shopping price, there are things to know about ordering ready-mix. While some think a cement truck goes from site to site dumping concrete until it is empty, this is not how it works.
Rather, each batch is individually formulated and mixed for a specific use. The number of “sacks” of cement used per yard of concrete influences the strength of the fully cured product. For example, “five-sack” mix is stronger than “four-sack,” and so on.
Also, ready-mix concrete must be off-loaded within 90-minutes of being mixed or within 300 revolutions of the truck’s tank — whichever comes first. So, a supplier’s location is a key consideration. Too far away creates problems with “set” times and delivery cost increases.
Narrow your search to those companies closest to your home or job site, then go to work comparing costs and services. Also, determine the lead time needed.
The success of a project depends on knowing how much concrete you need and determining at what point a ready-mixed delivery makes more sense than premixed bags. Knowing there are other ready-mix options helps, too, such as:
The following tips can help determine the success (or failure) of a project:
