Sunday, June 26, 2011

Smart Moves: Money diet can help buyers save for a home |

Contrary to popular belief, these days you may not need a whopping 15 to 20 percent down to finance a home. Though mortgage-lending standards remain stringent, low down payment options are becoming more widely available.

Still, nearly all homebuyers need cash, if only for closing costs and moving expenses. Are you cash-tight yet still want to take advantage of today's home prices? If so, amassing a war chest of cash could make your homebuying offer even more competitive.

“The more cash you have, the better deal you get,” said Mary Kuehn, a veteran real estate agent affiliated with the Council of Residential Specialists (

Kuehn said that homeowners selling in today's market are especially nervous about a deal falling through due to a financing glitch. That's why some sellers who receive multiple bids will take a slightly lower offer from purchasers who have more cash in the deal, realizing they're probably better fixed financially.

For those who believe the economy will gradually improve over time and that current homebuying bargains won't last forever, Kuehn said the sacrifices involved in a crash savings program could be worth it.

Here are pointers for those who wish to embark on a crash savings program to buy a home:
• Examine your attitudes about spending.

What stops people from sticking to a money diet? Financial planners say emotional impediments — not a lack of professional financial guidance — are often to blame.

“People come to financial advisers hoping for a miracle. But we're not miracle workers,” said Shawn Koch, a planner affiliated with the Garrett Planning Network ( Koch said many people attempting a crash savings program first need to deal with the reasons for their bad money habits, such as impulse spending or a sense of material entitlement.

• Start by doing an inventory of your current financial situation.

A major obstacle to saving for a home is uncontrolled day-to-day spending, Koch said. But before you can decide how to reallocate your funds, she said you need to review where your money has gone for a period of several months. This can be done either with pen and paper or a personal finance tool such as Quicken software. Such a review can bring surprises, Koch said.

For example, she said many of her clients are shocked to learn how much they're spending on restaurant meals, carryout food and coffee breaks. Doing a spending inventory can be time-consuming because you must sift through credit card and checking account statements. Indeed, for those who don't routinely track their spending, this process could take the better part of a weekend. But Koch said it's essential to determine where cuts are possible before you can slash spending.

• Sign up for an automatic savings plan.

Because they live paycheck to paycheck, many people find it hard to summon the discipline to extract a chunk from each paycheck for savings. And they fear automatic withdrawals from their pay. But financial planners say automatic withdrawals can be the answer for people who aren't methodical savers. And they say those who have direct debits taken from their pay rarely miss the money. Meanwhile, their savings accounts add up quickly.

“With an automatic debit plan, you just set it and forget it. That's a big plus for anyone trying to save money for a house,” Koch said.

by Ellen James Martin Universal Syndicate June 25, 2011

Smart Moves: Money diet can help buyers save for a home |

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